Salesforce Moves Higher Despite Series Of Price Target Reductions

The Analysts Still Love Salesforce.com

The analysts still love Salesforce.com NYSE: CRM despite the round of price target reductions it just received. The company reported a stellar quarter and raised its guidance but the analyst still felt the need to adjust their targets. The takeaway is that, while 7 analysts lowered their targets, another 3 raised theirs and the consensus is still nearly 50% above the current price action. With the analyst's community rating the stock a firm Buy and the outlook for revenue and earnings so good we can’t help but think the stock will reach the target. 

Analysis Dan Ives of Wedbush maintained his Outperform rating on the stock when he lowered his target. He thinks the risk-reward profile is compelling due to the growth outlook, the company’s position in the cloud, and the margin trajectory for the next few years. He put a target of $275 on the stock compared to the $305 Marketbeat.com consensus which is good for a gain of 33% or so. 

Salesforce.com Growth Accelerates 

Salesforce.com didn’t just have a great quarter but a quarter that grew 25.8% over last year, saw YOY growth accelerate on a YOY basis, and come in more than 100 basis points above the consensus. The revenue is driven by 25% growth in the core subscription and services segment compounded by a 46% gain in the Pro segment. Moving on to margin and earnings, the GAAP margin persists in negativity but is much better than last year and the losses are due to investment in the company. On an adjusted basis, the operating margin expanded to 15% and drove EPS to $0.84 per share and $0.09 better than expected. 

“We had another phenomenal quarter and full-year of financial results,” said Marc Benioff, Chair and Co-CEO of Salesforce. “As we continue to see tremendous demand from customers, we’re raising our FY23 revenue guidance to $32.1 billion at the high-end of the range, with non-GAAP operating margin of 20%, and operating cash flow growth of 22% year-over-year.”

The company is expecting to see momentum carry into the Q1 period of fiscal 2023 and persist into its end. The guidance for Q1 and FY 2023 revenue and earnings not only calls for growth but for growth above the market’s expectations as well. The FY revenue is expected to be $32 billion at the low end of the range compared to the $31.80 billion consensus estimate and margins are expected to widen. Nothing not to like about that. 

The Institutions Are Buying Salesforce.com, Maybe You Should Too 

The institutions are aggressively buying Salesforce.com and that can only mean one thing, the stock is undervalued at these levels and on track to rebound if not reach new all-time highs. To put it bluntly, the institutional buying activity has been twice as strong as the selling and netted more than 6.7% of the market cap in the last 12 months. The activity has remained strong coming into the Q1 period of 2022 as well, and we see it staying that way in the wake of the earnings report. 

The Technical Outlook: Salesforce.com Is At A Bottom 

Shares of Salesforce.com appear to be at the bottom but it may take a little while for the reversal to take hold. Price action has confirmed support at the $195 level but the post-release pop met resistance at the short-term moving average. The EMA may cap gains in the near term but we expect to see the bottom flesh out and turn into a reversal by mid-year, if not sooner.