Salesforce.com Shares Hit Record High on Strong Earnings; Buy with Target Price of $280

Salesforce.com Inc, an American cloud-based software company headquartered in San Francisco, reported a 29% jump in quarterly revenue as demand for online business software surged amid COVID-19 pandemic and raised its revenue forecast for the fiscal year 2021, sending its shares to a record high of $245.10 in after trading hours on Tuesday.

Salesforce’s second-quarter revenue jumped 29% to $5.15 Billion, higher than the market consensus of $4.90 billion. Excluding items, the leading provider of enterprise cloud computing solutions said it earned a profit of $1.44 per share and net income surged to $2.63 billion, or $2.85 per share, from $91 million, or $0.11 per share, a year earlier.

“Salesforce (CRM) remains a top front office pick as pipelines continue to improve despite the current environment. Despite the 13% AH increase, we believe Salesforce is valued attractively at 9.1x EV/2021 rev vs. group at 9.9x. As such, we maintain Buy and raise our PT to $285,” said Brent Thill, equity analyst at Jefferies.

“We believe Salesforce can deliver more margin improvement given its scale and will continue to monitor. Mgmt. also noted that this is not the best M&A environment primarily due to elevated multiples within Software. We continue to highlight this in our valuation piece and believe the next leg of growth has to be driven by fundamentals,” Thill added.

Salesforce forecast revenue between $20.7 billion and $20.8 billion in the fiscal year 2021, up from its previous forecast of $20 billion.

Salesforce.com shares closed 3.64% higher at $216 but surged over 13% to a record high of $245.10 in after trading hours on Tuesday. However, the stock is up over 30% so far this year.

Salesforce.com stock forecast

Morgan Stanley gave a target price of $275 with a high of $335 under a bull-case scenario and $172 under the worst-case scenario. Credit Suisse raised the target price to $245 from $200. Other equity analysts also recently updated their stock outlook. JP Morgan upped target price to $250 from $200, Jefferies increased their price objective to $285 from $235, Piper Sandler raised the target price to $285 from $210 and Wedbush rated outperform with a price target of $250.

Twenty-six analysts forecast the average price in 12 months at $208.40 with a high forecast of $254.00 and a low forecast of $120.00. The average price target represents a -3.54% decrease from the last price of $216.05. From those 26 analysts, 22 rated “Buy”, two rated “Hold” and two rated “Sell”, according to Tipranks.

We think it is good to buy at the current level and target $280 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst view

“Salesforce remains one of our best secularly positioned names given enterprise IT spend prioritized towards digital transformation. We see the company as a long-term share gainer within an estimated >$200 billion TAM spread across areas ranging from Sales, Customer Service, Marketing, and Digital Commerce to App Cloud, Analytics, and Integration Cloud,” said Keith Weiss, equity analyst at Morgan Stanley.

“With an expanding solution portfolio, a large and incremental contribution from recent M&A, we see total revenue nearly doubling by FY24, while expanding margins support durable ~20% CAGR in FCF/share through FY24. We remain Overweight CRM shares with our $275 PT is based on 27X our CY25e FCF per share of $13.08, discounted back at 7.5%,” he added.

Upside and Downside risks

Upside: 1) Better than expected synergies with newly acquired assets. 2) Bigger bounce back in margins after recent M&A – highlighted by Morgan Stanley.

Downside: 1) M&A may complicate raise concerns about core business strength and margin expansion potential. 2) Competition from apps vendors and emerging Internet platforms (ORCL, SAP, MSFT, AMZN).