Salesforce Correction May Be Over

Salesforce.com Inc. (CRM) topped out at 284.50 just two days after joining the Dow Industrial Average on Aug. 31 and dropped 25% into mid-January, filling the August gap between 218 and 249. An early December selloff, after the cloud computing juggernaut announced the acquisition of Slack Inc. (WORK), generated most of the technical damage during the decline, carving a 16-point gap that still hasn’t been filled.

Bouncing Off Strong Support

Market cycles are slowly turning ahead of the Feb. 23 earnings release, suggesting the intermediate correction is finally coming to an end. Analysts are expecting around 17% revenue growth in the next year, lower than the 20% or so in prior quarters, due to the slowing of large enterprise deals. However, the 5-month selloff has cleared the decks, shaking out weak-handed shareholders while dropping the stock onto strong support in the low 200s.

Loop Capital analyst Yun Kim upgraded Salesforce to ‘Hold’ this week, noting, “We are upgrading shares based on the following reasons: 1) current FY22 estimates have been de-risked (current 17% organic revenue growth estimate vs. previous annual organic revenue growth target of 20%), 2) checks indicate a modest rebound in its core business, driven by increasing mid-sized deal activity and continued strength in its Tableau and Mulesoft businesses, and 3) shares already fairly reflect risks related to the WORK acquisition”.

Wall Street and Technical Outlook

Wall Street consensus is solid as a rock, with a ‘Buy’ rating based upon 29 ‘Buy’, 4 ‘Overweight’, and 6 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $211 to a Street-high $270 while the stock opened Thursday’s U.S. session about $7 below the median $234 target. Price could drift higher into earnings, given this humble placement.

The stock broke out above the February 2020 high at 196 in July and took off in a vertical advance in August, posting an all-time high at 284.50 in September.  The subsequent pullback carved a trading range into December and broke down, landing on the 200-day moving average in January. Price is now caught between that trading floor and resistance at the 50-day moving average, with a breakout above 230 ringing the first in a series of potential buying signals.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.