Market Overview

6 Reasons To Hold On To Salesforce Stock


Shares of Inc. CRM, a leading provider of on-demand Customer Relationship Management software, have been performing well of late.

If you haven't taken advantage of the share price appreciation yet, its time you hold the stock in your portfolio as it looks promising and is poised to carry the momentum ahead. This Zacks Rank #3 (Hold) stock has an estimated long-term earnings growth rate of 25%.

Estimates Northbound

Estimates for Salesforce have moved up in the last 30 days, reflecting the optimistic outlook of analysts. The earnings estimates for fiscal 2018 has gone up in the last 30 days.

For fiscal 2018, the Zacks Consensus Estimate for earnings has gone up by 1 cent in the last 30 days and is pegged at $1.32.

Positive Earnings Surprise History

Salesforce outpaced the Zacks Consensus Estimate in three of the trailing four quarters, recording an encouraging positive average earnings surprise of 6.5%.

Ahead of the Industry

So far this year, the stock has outperformed the industry. Salesforce has returned 55.7% compared with 38.9% growth of the industry it belongs to.

Upbeat Q3

Salesforce posted strong third-quarter fiscal 2018 results with the top and bottom line surpassing the Zacks Consensus Estimate and management's guided range. Quarterly revenues and earnings also improved year over year.

The company reported non-GAAP earnings of 39 cents per share, which outpaced the Zacks Consensus Estimate of 37 cents and came ahead of its own guidance range of 31-32 cents as well. Moreover, the figure compared favorably with the year-ago quarter's earnings of 24 cents, primarily driven by strong top-line growth and efficient cost management. This was partially offset by increased number of outstanding shares.

Salesforce continued to witness solid growth in revenues. The company's revenues of $2.68 billion jumped 24.9% year over year and also surpassed the Zacks Consensus Estimate of $2.648 billion. Furthermore, reported revenues came above the guided range of $2.64-$2.65 billion (mid-point: $2.645 billion).

The improvement can be primarily attributable to rapid adoption of the company's cloud-based solutions. Moreover, higher demand for the Salesforce ExactTarget Marketing Cloud platform, part of the Salesforce1 Customer Platform, drove the year-over-year upside in revenues.

Strong Guidance

Buoyed by better-than-expected fiscal third-quarter results, the company provided an encouraging guidance for the fiscal fourth quarter and raised outlook for the full year as well.

For the fiscal fourth quarter, the company anticipates revenues in the range of $2.801-$2.811 billion (mid-point: $2.806 billion), representing a year-over-year increase of 22-23%. The guided range was higher than the Zacks Consensus Estimate of $2.79 billion.

Further, the company expects non-GAAP earnings per share in the band of 32-33 cents. The Zacks Consensus Estimate was currently pegged at 33 cents.

Additionally, Salesforce raised revenues and earnings outlook for fiscal 2018. Revenues are now anticipated to come in the range of $10.43-$10.44 billion (mid-point $10.435 billion), up from the previous projection of $10.35-$10.40 billion (mid-point $10.375 billion), representing a 24% year-over-year increase. The Zacks Consensus Estimate is currently pegged at $10.39 billion.

By completing this target, the company is expected to achieve the $10 billion mark in revenues faster than any other enterprise software company.

Similarly, Salesforce now projects non-GAAP earnings to lie between $1.32 and $1.33, up from the previous guided range of $1.29-$1.31 per share. The Zacks Consensus Estimate is currently pegged at $1.31.

Growth Drivers

For the last few years, Salesforce has been keen on building partnerships to expand international operations. Its partnership with Amazon's AMZN Amazon Web Services (AWS) is very crucial. In fact, the company during its last earnings conference call stated that the collaboration has helped it gain businesses overseas.

Of late, Salesforce also entered into an agreement with AWS to run its software in the latter's Canadian and Australian data centers. This, in turn, has opened up fresh prospects in the Canadian and Asia-Pacific markets.

During the fiscal third quarter, the company won several deals backed by its international expansion initiatives. Companies like Hilton, DuPont, National Australia Bank and Hitachi picked Salesforce's solutions to fuel digital transformation.

Furthermore, Salesforce and Alphabet Inc. GOOGL recently announced a strategic partnership, according to which the two tech giants will integrate their software solutions and cloud-computing services. We believe the move is part of the companies' broader infrastructure expansion plans.

We consider the rapid adoption of the Salesforce1 Customer Platform will be a positive. Overall, the company's diverse cloud offerings and considerable spending on digital marketing remain catalysts. Additionally, strategic acquisitions and the resultant synergies are anticipated to prove conducive to growth in the long run.

In view of increasing customer adoption and satisfactory performances, market research firm, Gartner, acknowledged Salesforce as the leading social CRM solution provider. Also, Forbes recently named Salesforce as the most innovative company in the world again. We believe that the rapid adoption of Salesforce's platforms indicates solid growth opportunities in the ever-growing cloud computing segment.

Stock to Consider

A better-ranked stock in the broader technology sector is NVIDIA Corporation NVDA, which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

NVIDIA has a long-term earnings per share growth rate of 11.2%.

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The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.


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