Salesforce stock surges after earnings beat, but analysts want more

Shares of Inc. rebounded on Friday after a strong earnings report and forecast, but analysts wondered if the cloud-based customer relationship management company’s operating margins could be even better. .

Friday, Salesforce CRM,
+ 5.98%
stocks jumped nearly 8% from their intraday peak, leading gains on the Dow Jones Industrial Average DJIA,
+ 0.35%,
who added Salesforce as a component last year. Salesforce shares were on track for their best one-day gain since its record rally of 26% last August.

On Thursday night, Salesforce had another beaten and increased quarter and Salesforce CEO Marc Benioff said he was on track for his 2026 forecast of $ 50 billion in revenue. The company also announced that its annual Dreamforce convention will be held in person this year at multiple global locations.

Analysts, however, hung on to the company, raising its operating margin by 30 basis points for the year to 18%, with part of that expansion driven by the acquisition of Slack Technologies Inc. for $ 27.7 billion. of dollars.
+ 2.15%,
announced at the end of last year and is expected to be closed by the end of July.

Citi Research analyst Tyler Radke, who has a neutral rating and a price target of $ 250, called earnings “typical” and was not impressed with the margin forecast.

“While the increase in Q1 profitability and qualitative comments suggested a friendlier tone towards margins, the lack of a significant increase in guidance (only 30bp for FY22) and involved 2H [earnings before interest and taxes] The indications below the street reinforce Salesforce’s “margin is a choice” philosophy that could weigh on stocks, ”Radke said.

Jefferies analyst Brent Thill, who has a buy rating and a price target of $ 300, also criticized the margin forecast.

“Although the margins were guided higher at 18% for F22E, they still lag behind peers like [Adobe Inc.]
+ 1.95%.
Considering the Slack deal and the cost of an in-person Dreamforce event, margins could face pressure in the second half of the year, ”Thill said.

Cowen analyst J. Derrick Wood, who has an outperformance rating and a price target of $ 290, was a little less critical, but said there could still be some improvement.

“We are encouraged by the first quarter results of significant transaction activity and better execution of acquired products, illustrating CRM’s ability to sell assets within its large installed base,” said Wood. “Better-than-expected margins were also encouraging and while we believe there is still work to be done to improve the margin narrative, some permanence of remote work appears to be able to generate a lasting higher level of efficiency. “

Stifel analyst Tom Roderick, who has a buy rating and a price target of $ 295, was interested in the increase in large contracts at Salesforce, due to past acquisitions such as Tableau Software in 2019 and MuleSoft in 2018.

“One of the highlights of the quarter was a record number of
seven-digit transactions, which we believe underscore the strategic nature of Salesforce’s solutions and the tremendous opportunity for digital transformation projects in almost every industry, ”said Roderick. Transactions over $ 1 million are up 120% at Salesforce from a year ago, the company reported.

Raymond James analyst Brian Peterson, who has a strong buy rating and a price target of $ 280, turned to large trade activity rather than margins.

“While the bears can focus on lower quality income (almost all driven by the rising services), we are encouraged that recent acquisitions are boosting large deal activity (especially Tableau),” Peterson said. “We are aware that investors continue to demand increased margins, although it is difficult to find a more compelling risk / reward in software for a company with 20% + growth at this scale.”

Over the past 12 months, Salesforce shares have risen 32%, while the IGV iShares Expanded Tech-Software Sector ETF,
+ 1.27%
increased by 38%, the S&P 500 SPX index,
+ 0.25%
gained 39%, the Nasdaq COMP composite index,
+ 0.31%
jumped 47% and the Dow Jones rose 36%.

Late Thursday, Salesforce forecast adjusted second-quarter profit of 91 cents to 92 cents per share on revenue of $ 6.22 billion to $ 6.23 billion, and fiscal 2022 profit of $ 3.79 to $ 3.81 per share on sales of $ 25.9 billion to $ 26 billion.

That prompted analysts to collectively raise their consensus to 91 cents per share on revenue of $ 6.23 billion for the quarter, from a previous estimate of 87 cents per share on revenue of 6, $ 17 billion, and to $ 3.70 per share on revenue of $ 25.91 billion, up from a previous $ 3.44 per share on revenue of $ 25.75 billion dollars.

Of the 45 analysts who cover Salesforce, 36 have buy or overweight ratings and 9 have hold ratings. Of those, eight raised their price targets and one lowered theirs, resulting in an average price target of $ 277.83, down from $ 275.34 previously, according to FactSet data.

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