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On Friday, Morgan Stanley (NYSE:MS) reiterated its Overweight rating and $404.00 price target on Salesforce.com (NYSE:CRM) shares. The firm’s analysts addressed the first-quarter results of fiscal year 2026, noting that while the company’s performance metrics aligned with expectations, the market’s reaction was more negative than anticipated. According to InvestingPro data, 33 analysts have recently revised their earnings estimates upward, with price targets ranging from $225 to $442. The company currently trades at $266.92, suggesting potential upside based on analyst consensus. Concerns among investors were primarily focused on Salesforce’s core performance, margins, and the new Agentforce feature.
Salesforce reported a Q1 operating margin of 32.3%, which was slightly below the general market expectation of 32.6%. Despite a favorable currency movement during the quarter, which led to a $400 million increase in as-reported revenue guidance, the company’s FY26 guidance for a 34% margin was only reiterated, not raised. InvestingPro analysis shows impressive gross profit margins of 77.34%, demonstrating strong fundamental performance. The company maintains a GOOD financial health score, with particularly strong metrics in growth and profitability. This prompted investors to question if Salesforce is suggesting a potential slowdown in margin growth.
Although management did not specify any particular factors affecting the margin in the quarter, it is important to note that Q1 is typically Salesforce’s seasonally weakest quarter for margins, which tend to improve throughout the year. The unchanged margin guidance, despite the foreign currency benefits to revenue, can be attributed to the company’s higher international expenses, which offset the revenue gains.
Morgan Stanley acknowledged that expectations might now include a more conservative pace of margin expansion, especially following Salesforce’s structural focus on profitability during the slower growth environment of FY23. However, the firm highlighted Salesforce’s ongoing commitment to margin improvement, even as the company plans to invest in growth opportunities like Agentforce and Data Cloud. With a market capitalization of $255.18 billion and revenue growth of 7.97% over the last twelve months, Salesforce remains a prominent player in the software industry. For deeper insights into Salesforce’s growth metrics and financial health, InvestingPro subscribers can access comprehensive analysis and additional ProTips in the detailed Pro Research Report. This includes accelerating the hiring of account executives to support the sales process for these new product cycles.
Salesforce’s management emphasized their strategy to reallocate resources, such as moving personnel from customer service to the new forward-deployed engineer strategy, to support growth. With a return to double-digit year-over-year growth and modest margin expansion, Morgan Stanley projects sustainable low teens Free Cash Flow growth for Salesforce. Given the Large-Cap average multiple of approximately 1.8X EV/FCF/G, the firm suggests that Salesforce shares, currently trading at a mid-teens multiple, have significant potential for expansion.
In other recent news, Salesforce has been the focus of several analyst reports following its first-quarter performance. TD Cowen reaffirmed its Buy rating and $375 price target, noting that Salesforce’s revenue and committed remaining performance obligations slightly exceeded estimates by 1%. FBN Securities also maintained an Outperform rating with a $360 target, highlighting an 8% year-over-year revenue increase and a 12% growth in current remaining performance obligations, both surpassing consensus expectations. Meanwhile, BMO Capital Markets kept its Outperform rating and $350 target, acknowledging Salesforce’s solid free cash flow generation and steady guidance for fiscal year 2026.
Conversely, Citi revised its price target downward to $295 from $320, maintaining a Neutral rating. This adjustment was due to concerns about a deceleration in growth and potential challenges in the company’s enterprise sector. CFRA, on the other hand, reiterated a Strong Buy rating with a $375 target, emphasizing the company’s potential to meet or exceed revenue expectations in upcoming quarters. Analysts from various firms have noted Salesforce’s progress with its Agentforce and Data Cloud products, with some suggesting these could drive future growth.
Despite mixed opinions, Salesforce’s strategic focus on data and artificial intelligence capabilities remains a point of interest. The company plans to expand its salesforce by 22% year-over-year, a move seen as aggressive selling rather than organic demand by some analysts. Overall, Salesforce’s recent performance and strategic initiatives have drawn diverse reactions, reflecting both optimism and caution among analysts.
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