Jakub Mosur Photography/Salesforce
Analysts found plenty of reasons to cheer Salesforce.com Inc.’s latest earnings report, though investors aren’t as convinced.
Shares of Salesforce CRM, -1.04% are down 2.4% in midday trading Thursday, after the company reported better-than-expected June quarter results but delivered a disappointing outlook for the current period. The company expects to generate adjusted earnings per share of 49 to 50 cents on revenue of $3.36 billion to $3.37 billion for the third quarter, whereas the FactSet consensus had called for 53 cents and $3.35 billion, respectively.
Nonetheless, analysts were upbeat. “Although guidance for revenue, EPS, and unearned revenue was disappointing in nominal terms, the outlook looks pretty positive when adjusted for recent dollar strengthening,” wrote Wedbush analyst Steve Koenig. “Overall, the results are consistent with the view from our checks, which point to a strong demand environment and sustained momentum for Salesforce.”
Koenig rates the stock at outperform with a $170 price target, or about 12% above its current trading level.
Canaccord Genuity’s Richard Davis took a similar view. “The only thing that we believe is worth a comment is that the guidance seems conservative to us when we weigh our independent understanding of Salesforce’s fundamentals with the implied modeling,” he wrote. “This is another way of saying that it looks to us like Salesforce has stacked the odds toward a meaningful beat when it reports its fiscal Q4 in late February 2019.”
Davis, who rates the stock a buy, upped his price target to $165 from $150.
Evercore ISI’s Kirk Materne wrote that he expects that “any pullback related to the F3Q guidance will be short-lived” as Salesforce is showing positive momentum with its MuleSoft acquisition and has “a largely untapped international opportunity.” He has an outperform rating and $170 price target on shares.
In general, analysts liked the contributions they saw from MuleSoft, the company’s largest acquisition in history, which closed in early May. MuleSoft generated $122 million in revenue, which exceeded analyst expectations.
“Management commentary on the MuleSoft integration was extremely positive, even saying that it may be the smoothest integration the company has ever experienced,” wrote William Blair’s Bhavan Suri, who rates the stock at outperform. “We continue to be optimistic on the MuleSoft acquisition and believe there is plenty of upside to management’s current MuleSoft revenue guidance.”
Bernstein analyst Mark Moerdler highlighted strong growth across various cloud-related business areas, including commerce cloud and platform. “While we continue to have long-term concerns regarding Salesforce’s ability to expand its margin significantly as it decelerates, this quarter was another positive data point regarding its growth runway,” wrote Moerdler, who has a market perform rating on the stock and a $146 price target.
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Oppenheimer’s Brian Schwartz wrote that one negative for the quarter was that the company’s service cloud unit added less revenue in the latest quarter than in the prior one.
“Billings concerns may overhang the stock,” Schwartz wrote, but he isn’t too concerned. “Billings are noisy, but backlog trends show Salesforce as a future share-gainer.” He has an outperform rating and $160 price target on the shares.
Analysts are generally bullish on Salesforce shares—37 of 43 analysts covering the stock have buy ratings, according to FactSet—and they have a history of being quite effusive with their praise for the company. Morgan Stanley’s Keith Weiss was no exception this quarter. “Expanding the solution portfolio into a hot integration market, utilizing machine learning to add practical value to customer facing business processes, building out a partner community to further extend their go to market reach – all well illustrate the fast pace of innovation, aggressive expansion of the solution set and heavy distribution investment which has enabled Salesforce.com to sustain an unprecedented growth at scale in enterprise software,” wrote Weiss, who has an overweight rating on the stock.
He pointed to a number of encouraging data points, such as better-than-anticipated margin growth.
Investors will now start to shift their focus to the Dreamforce conference, a major event that kicks off Sept. 25. Management tried to build buzz for on the earnings call by teasing “an incredible new reveal,” an appearance by Metallica, and overall “the Dreamforce that you will all never forget.”
Salesforce shares have gained 61% over the past 12 months, while the S&P 500 SPX, -0.09% has climbed 18%.