Leading enterprise-cloud-computing-solution provider Salesforce, Inc. (CRM) is pioneering a significant transition in customer relationship management by integrating advanced, secure, generative AI across its comprehensive product range.
I have explained why CRM could make a worthy portfolio addition this week in this piece.
Despite an unstable macroeconomic climate, CRM's resilience and persistent growth can be attributed to the robust demand for its cloud and business software products, as customers worldwide are undertaking comprehensive digital transformation journeys.
Companies seek innovative solutions powered by generative AI to conquer current market dynamics. CRM recently collaborated with multinational technology corporation International Business Machines Corporation (IBM) to accelerate businesses' adoption of AI for CRM globally across multiple industries. The partnership is expected to revolutionize customer, partner, and employee experiences while ensuring data protection.
On August 4, CRM launched Einstein Studio, which allows businesses to integrate personalized AI models to power CRM applications across sales, service, marketing, commerce, and IT departments. It is anticipated to induce an uptick in subscription rates, expand customer reach, and optimize revenue streams for the company.
In the same month, CRM also launched Starter, an amalgamated CRM tool meticulously designed for up-and-coming businesses by bringing together sales, service, and marketing functions. This initiative can improve client retention, streamline sales operations, and enhance CRM’s overall productivity.
Furthermore, reflecting a resolute commitment to transformation and delivering robust shareholder value, CRM’s impressive second-quarter top-line performance underscores the benefits of its strategic market entry plan and unwavering commitment to customer success. The company has issued strong fiscal third-quarter projections, raising its fiscal year 2024 financial outlook.
For the fiscal third quarter, CRM projects total sales between $8.70 billion and $8.72 billion (midpoint $8.71 billion), indicating 11% annual growth. It expects non-GAAP earnings per share for the quarter to be between $2.05 and $2.06.
For the fiscal year ending January 2024, it raised the revenue guidance range to $34.7 billion to $34.8 billion, up from the previous forecast of between $34.5 billion and $34.7 billion. Its non-GAAP earnings per share are now expected to be between $8.04 and $8.06, up from the prior estimate range of $7.41 to $7.43.
The stock has gained 18.8% over the past six months to close its last trading session at $221.53. Wall Street analysts expect the stock to hit $253.87 in the next 12 months, indicating a potential upside of 14.6%. The price target ranges from a low of $159 to a high of $340.
Institutional investors own 78.9% of the stock, indicating its high credibility in the investment community. Of the 2,413 institutional holders, 1,120 have increased their positions in the stock. Moreover, 227 institutions have taken new positions in the stock with 8,646,416 shares, reflecting signs of bullishness.
Here are some other factors that could shape CRM’s performance in the upcoming months:
CRM’s total revenues for the fiscal second quarter that ended July 31, 2023, increased 11.4% year-over-year to $8.60 billion, while its gross profit stood at $6.49 billion, up 16% from the year-ago quarter. Income from operations grew 664.8% year-over-year to $1.48 billion.
The company’s non-GAAP net income and net income per share rose 76% and 78.2% year-over-year to $2.09 billion and $2.12, respectively. Moreover, as of July 31, 2023, its total current liabilities stood at $20.81 billion, compared to $25.89 billion as of January 31, 2023.
CRM’s trailing-12-month gross profit margin of 74.52% is 55.6% higher than the 47.89% industry average. Its trailing-12-month EBITDA and net income margins of 23.30% and 4.77% are 157.8% and 134.6% higher than the industry averages of 9.04% and 2.03%, respectively.
Also, its trailing-12-month ROCE and ROTC of 2.67% and 3.67% are 329.7% and 54.9% higher than the industry averages of 0.62% and 2.37%, respectively.
Solid Historical Growth
CRM’s revenue grew at 19.5% and 22.8% CAGRs over the past three and five years, respectively. Over the past three years, its EBITDA rose at a CAGR of 40.5%. Furthermore, the company’s total assets and levered FCF increased at CAGRs of 17% and 21.4%, respectively, during the same period.
Favorable Analyst Estimates
For the fiscal year ending January 2024, CRM’s revenue and EPS are expected to increase 10.9% and 53.7% year-over-year to $34.77 billion and $8.05, respectively. Also, for the fiscal year ending January 2025, Street expects its revenue and EPS to come at $38.55 billion and $9.33, indicating increases of 10.9% and 15.8% year-over-year, respectively.
Furthermore, CRM’s revenue and EPS for the fiscal third quarter ending October 2023 are expected to increase 11.2% and 46% year-over-year to $8.72 billion and $2.04, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
POWR Ratings Show Promise
CRM’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. CRM has a B grade for Quality, consistent with the higher-than-industry profitability.
CRM has an A grade for Growth, justified by its solid historical growth.
Also, CRM’s A grade for Sentiment is evident from the favorable analyst estimates.
Within the Software - Application industry, CRM is ranked #10 out of the 135 stocks.
Beyond what we’ve stated above, we have also rated the stock for Value, Momentum, and Stability. Get all ratings of CRM here.
Despite last year’s volatile macroeconomic landscape, the software industry is witnessing a remarkable recovery, propelled by technological progress, digital transformations across industries, the rising adoption of data-centric solutions, and significant investments in cloud technology. The global software market is anticipated to reach $1.59 trillion by 2032, growing at an 11.9% CAGR.
CRM’s robust profitability, resilient growth, and optimistic top-line and bottom-line forecasts suggest that the stock could be a good investment this week.
How Does Salesforce, Inc. (CRM) Stack Up Against Its Peers?
While CRM has an overall grade of B, equating to a Buy rating, you may also check out these other stocks within the Software - Application industry: eGain Corporation (EGAN), Commvault Systems, Inc. (CVLT), and IBEX Ltd. (IBEX), with an A (Strong Buy) rating. For exploring more A and B-rated software - application stocks, click here.
What To Do Next?
Get your hands on this special report with 3 low priced companies with tremendous upside potential even in today’s volatile markets:
CRM shares were trading at $221.53 per share on Monday morning, up $0.07 (+0.03%). Year-to-date, CRM has gained 67.08%, versus a 18.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.Is Salesforce.com (CRM) a Software Stock Buy or Sell This Week? appeared first on StockNews.com