Michael Nemeroff Sings the Praises of Salesforce.com, Inc. (CRM) Following Strong Quarter and Outlook


Salesforce.com, inc. (NYSE:CRM) saw its shares tick lower today after delivering strong 3Q:FY18 results and providing a solid 4Q:FY18 outlook, while boosting its sales and EPS guidance for FY:18 and reiterating its recently introduced FY:19 revenue outlook. Apparently, Salesforce’s outperformance wasn’t enough to impress investors. The stock may be lower as investors’ expectations for the stock have climbed higher recently. After today’s slight pullback, shares are up 20% in the past six months.

During the third-quarter, Salesforce generated revnues of $2,68 billion, above Street’s estimates of $2,65 billion. EPS of $0.39 was above Street’s estimates of $0.37. In addition, Salesforce raised its FY:18 outlook with revenue now expected to be $10.43-10.44 billion from $10.35-10.40 billion previously (Street is at $10.395 billion), while the company now expects EPS of $1.32-1.33 vs. $1.29-1.31 previously (Street is at $1.32). For 4Q:FY18, Salesforce expects sales of $2.801-2.811 billion (Street is at $2.794 billion), and EPS of $0.32-0.33 (Street is at $0.34).

Credit Suisse analyst Michael Nemeroff commented, “CRM posted a strong FQ3, with revenue, margins, and EPS above consensus. More impressive was the billings beat as the company (1) closed one of its largest public sector deals to date, and (2) saw continued momentum with its multi-cloud strategy, which led to accelerating growth in Service, Platform, and Marketing Clouds. Additionally, mgmt provided FQ4 deferred revenue growth guide of +19-20% yr/yr, which implies FY18 billings growth of ~+19% vs. prior CS/Street billings growth of +20.7%/+20.4%, which we believe could prove conservative again, particularly given mgmt’s expectations for Service Cloud (~30% of S&S revenue) to further accelerate over the next couple of qtrs. Lastly, we highlight that OCF came in slightly lower than expected mostly due to higher deferred commissions given the strong bookings activity (backlog increased +34% yr/yr to $11.5B).”

As such, Nemeroff reiterates an Outperform rating on shares of Salesforce with a price target of $120, which implies an upside of 12% from current levels. (To watch Nemeroff’s track record, click here)

Wall Street agrees with Nemeroff that this cloud computing giant is one to watch, as TipRanks analytics exhibit CRM as a Strong Buy. Out of 34 analysts polled in the last 3 months, 29 are bullish on Salesforce stock while four remain sidelined and only one is bearish. With a return potential of 10%, the stock’s consensus target price stands at $117.32.

 

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