The Bottom Is In For Salesforce.com

If there were any doubts about Salesforce.com’s NASDAQ: CRM Q4 performance and outlook for 2023 they have been laid to rest. The Q4 results are so far above expectation they and the outlook have the stock up more than 15% in premarket trading and on the cusp of a complete reversal. The question now is if the stock will indeed make that reversal and the odds are high that it will, if not now, sometime in the future.

Salesforce.com is the leader in its industry; founder Marc Benioff created the industry as we know it today and is the best in its breed. It is also one of the very few companies not only growing in Q4 but guiding for growth in 2023 that is above consensus expectations. That fact has the analysts raising their targets, which will help drive this stock higher. 

The Analysts Cheer Salesforce.com Results 

More than 40 analysts are covering Salesforce.com, which is significant by itself. This means this stock is widely held and may see significant head and tailwinds given shifts in the sentiment. The sentiment is pegged at a Moderate Buy according to Marketbeat.com’s analyst tracking tools, and it and the consensus price target are trending higher. 

There’ve been at least 16 major sell-side commentaries since the Q4 results were released, and they all include a price target increase and 1 upgrade to Buy from Hold. All new price targets assumed an upside relative to the pre-release closing price, and the new consensus target is about 8% above the post-release premarket action. The consensus is down versus last year but up relative to the low set last month and compared to last quarter.

This is a sign that sentiment has bottomed; a change in trend could lead the stock even higher. 

"Six years on the sidelines is a long time in our universe, but here we are, upgrading CRM to Buy as we believe its [fiscal 2024] profitability guidance better aligns its cost structure with its intermediate-term growth outlook," said analyst Scott Berg of Needham, adding that “annual free cash flow growth should be 20% or more.” Dan Ives of Wedbush called the results “eye-popping.” 

Salesforce.com Has Blowout Quarter, Offers Robust Guidance

Salesforce.com was not immune to the economic slowing gripping the market, but it isn’t feeling the pain quite so bad. The shift to digitization is as strong as ever and has resulted in 14.3% of revenue growth for this company compared to last year. The more impressive figure is that revenue beat the Marketbeat.com consensus by $0.390 billion or almost 500 basis points. The better news is that efforts to control costs put in place last fall paid off smartly and resulted in bottom-line strength as well.

The company’s $1.68 adjusted earnings is double last year’s profit, beating the consensus by $0.32 or 2400 bps better than expected. This is surprising news in a world where the average S&P 500 company’s earnings are shrinking and missing expectations. 

Regarding the guidance, the company expects FY2023 revenue of $34.5 billion at the low end of the range. This compares well with the consensus of $34.14 billion and the EPS outlook is more robust. EPS is expected to be $7.12 at the low end of the range which is 22% better than the consensus target. 

Beware The Chart, Salesforce.com May Become Range Bound 

Share of CRM popped more than 10% at the open but don’t go chasing prices. The stock hit resistance at the top of a range that may cap gains for the foreseeable future. Not only is resistance in play, but the stock opened a significant price gap that will probably get closed before we see this market break out to new highs.

Longer term, this company is reversing and may break out of its trading range later this year or early in 2024, if not now.