Salesforce Earnings: RBC Positive Into Print On Strong Business Momentum

Salesforce (CRM) is expected to report F2Q21 earnings today after market close.

Going into the price, five-star RBC Capital analyst Alex Zukin is positive, citing checks that suggest improving underlying business momentum.

“Given discounted valuation and increased likelihood of outperformance across most guided metrics, we like the risk/reward trade and raise our price target to $220 (from $210)” the analyst told investors.

With shares up 28% year-to-date, Zukin’s new price target indicates 6% upside potential from current levels. “Our checks lead us to believe CRM will have a solid 2Q with results likely in-line or slightly ahead of re-planned estimates” the analyst stated. (See CRM stock analysis on TipRanks).

From a vertical perspective, Zukin forecasts solid enterprise activity in Financial Services, SLED and Federal Government. “We believe Europe (and to a lesser degree Japan) was a particular standout from a large deal perspective but checks suggest deal momentum across the board” the analyst commented, adding that he heard of notable success around Public Sector deals for Contact Tracing initiatives.

And from a product perspective, Marketing Cloud and Commerce were called out as growth drivers. “Given CRM’s conservative post-COVID guidance (lowered by 2x the rate of other vendors in our space), we believe that most investors are expecting outperformance and with discounted valuations and more appetite for defensive “GroLoMo” positioning into year-end we view the risk/reward positively” Zukin concludes.

Specifically, the analyst expects revenue upside of ~1.7% (in-line with the prior 4-quarter average) or $4.977B (+24.5% Y/Y vs. cons. +22.7%) while cRPO upside of 2.1% would result in $14.399B (+19.0% Y/ Y vs. cons. +16.4%).

Combined, this would result in cRPO billings $4.88B (+13.5% Y/Y vs. cons +4.4% Y/Y). On guidance he expects the beats to be flowed through and cRPO to potentially be guided to ~$14.6B (in-line with consensus).

cRPO (current remaining performance obligation) bookings are an aggregate of deferred revenue and order backlog- and are a lead indicator of future performance.

Overall the Street shares RBC’s bullish take on Salesforce, with 21 recent buy ratings, 2 hold ratings and 2 sell ratings adding up to a Strong Buy consensus. However, due to the recent rally, the average analyst price target of $207 now indicates 1% downside potential from the current share price.

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