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On Monday, Guggenheim analysts downgraded shares of Salesforce.com (NYSE:CRM) from Neutral to Sell, assigning a new price target of $247.00. The firm's decision comes after evaluating Salesforce's performance and market position, particularly in light of the company's recent product launch and overall growth prospects.
According to InvestingPro data, Salesforce maintains impressive gross profit margins of 77% and boasts a perfect Piotroski Score of 9, indicating strong financial health.
Salesforce's stock has experienced a significant rally, surging approximately 30% in the four months following the introduction of Agentforce during its second-quarter fiscal year 2025 earnings call on August 28, 2024. This increase outpaced the IGV's 19% gain and the S&P's 6% gain over the same time frame.
Despite this rally, Guggenheim analysts expressed skepticism about Salesforce's ability to effectively monetize Agentforce without acquiring additional assets that have been operating in the same space for the past decade.
The analysts noted that while Salesforce's status as a system of record provides it with staying power, it does not confer any particular advantage in delivering artificial intelligence solutions that require dynamic, context-rich data, as opposed to the static data that Salesforce currently manages.
Concerns were also raised regarding Salesforce's innovation capabilities, citing a lack of significant organic innovation recently, as well as challenges in rebuilding its enterprise sales talent after major leadership changes, including two co-CEOs ago.
Guggenheim's analysis suggests that investor discussions should shift from whether Salesforce can achieve 9% to 10% growth in FY26E to a more realistic debate between 5% and 7% growth. They compared Salesforce's situation to that of CA Technologies, which experienced growth in low-single digits for some time despite having capable growth leadership.
In terms of valuation, Salesforce is currently trading at 8.6 times enterprise value to next twelve months recurring revenue (EV/NTM rec rev) based on Guggenheim's "Plausible scenario." This is compared to the 5.4 times EV/NTM rec rev that the analysts consider to be the intrinsic value of a Software (ETR:SOWGn) as a Service (SaaS) solution that is run hyper-efficiently but does not grow or declines.
InvestingPro's comprehensive analysis reveals the company maintains strong financials with an overall health score of "GREAT" and projects continued profitability, though it trades at relatively high valuation multiples. Access the full Pro Research Report for detailed valuation insights and expert analysis.
Furthermore, when adjusting for share repurchases to offset stock-based compensation (SBC) dilution, the firm believes the enterprise value to next twelve months free cash flow (EV/NTM FCF) is 26 times, or 35 times if not adjusted, which they deem high for a company growing in the single digits.
In other recent news, Salesforce.com has drawn significant attention from analysts following the launch of Agentforce 2.0, its updated artificial intelligence product. Wedbush Securities, Mizuho (NYSE:MFG) Securities, and Stifel have all maintained an Outperform rating, with Goldman Sachs reaffirming its Buy rating on the company. These endorsements emphasize Salesforce's strategic positioning in the artificial intelligence sector and the potential for Agentforce 2.0 to boost revenue growth.
The company's AI initiatives are expected to capitalize on the projected $7 trillion digital labor market. Agentforce 2.0, slated for full availability in February 2025, is designed to perform complex tasks for humans, marking the advent of a new digital labor era. This initiative aligns with the broader industry trend toward automation and intelligent systems.
Salesforce's impressive gross profit margins of 76.94% and perfect Piotroski Score of 9 further underscore its potential for growth. Truist Securities, following attendance at the CRM's Agentforce World Tour event, maintained a Buy rating, highlighting the positive reception of Salesforce's offerings.
However, Macquarie initiated coverage on Salesforce with a Neutral rating, noting potential upside and downside risks. These recent developments reflect Salesforce's continued efforts to innovate and expand its product offerings in the AI sector.
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