Roth Capital’s top analyst Richard Baldry seems to be giving salesforce.com (CRM) a yawn, saying CRM’s Q3F19 results were good, although its strong reported earnings were largely driven by a gain realized on a strategic investment of roughly $0.08. The analyst notes his forecast for the cloud solution company is “largely unchanged” for Q419 and FY20, with revenues seen moderately higher but PF EPS staying the same. It’s safe to say Baldry would go by the old adage – CRM is going nowhere fast. Baldry reiterates a Neutral rating and a $139 price target, which shows a downside of 0.8%, from where the stock is currently trading.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, 5-star analyst Richard Baldry has a yearly average return of 24.1% and a 68% success rate. Baldry has a 19.9% average return when recommending CRM, and is ranked #39 out of 5,127 analysts.
Despite the analyst’s doubts, CRM does continue to show a hearty demand and strong enterprise spending, which can be credited to recent Federal tax cuts. Revenue of $3.39 billion was just slightly ahead of Baldry’s prediction of $3.36 billion, which had guided the analyst to adjust his Q4F19 revenue prediction to $3.56 billion versus the prior $3.52 billion. Nevertheless, Baldry is skeptical about the company’s earning quality.
“Excluding another highly skewing strategic investment gain impact, pro forma EPS would have been $0.53, essentially matching our $0.52 forecast. CRM has reported similar strategic sale gains in the prior two quarters to leave our view of its earnings quality as weakening,” Baldry explains. “Post 1QF19’s peak PF EPS result of $0.71, CRM has reported two sequentially lower quarters, with another lower quarter guided for 4QF19, a pattern we view as out-of-step with its premium valuation.”
“As the largest SaaS player based upon revenues, we believe CRM warrants a premium valuation. However, with CRM’s organic growth at the low-end of its peer group (roughly 20-25% versus peers growing 25-30% or higher), we view its current premium, trading at 7.4x run run-rate revenues (net of net cash) versus a peer average of 6.4x, as fair, but not meaningfully extensible. Given shares are up roughly 85% since the start of 2017, or nearly 2x the interim revenue increase of 48% (which includes upward skewing acquisition impacts), we view its near-term risk-reward as balanced, at best,” Baldry affirms.
Other analysts might have to seriously disagree with Baldry. The Street considers this stock a Strong Buy. According to TipRanks analytics, out of 33 analysts, 30 are bullish, 3 sidelined and none are bearish. The consensus price target stands at $172.45, showing a 23.35% upside from the current cost of a share. (See CRM’s price targets and analyst ratings on TipRanks)