Salesforce stock seen as undervalued with potential to outperform in 2025

Monday, Piper Sandler reiterated an Overweight rating on Salesforce.com (NYSE:NYSE:CRM) with a steadfast price target of $405.00. The research firm's analyst highlighted Salesforce as a top pick for 2025, emphasizing the company's potential to leverage artificial intelligence (AI) trends alongside other tech giants like Microsoft (NASDAQ:MSFT) and Snowflake (NYSE:SNOW).

With a market capitalization of $318.59 billion and impressive gross profit margins of 76.94%, Salesforce maintains its position as a prominent player in the software industry, according to InvestingPro data.

The analyst outlined ten reasons supporting the bullish stance on Salesforce. The first is the company's ability to sustain double-digit free cash flow (FCF) growth, even if revenue growth decelerates. This is evidenced by the company's current levered free cash flow of $11.87 billion. Additionally, operating margin (OM) expansion to 38-41% is anticipated to fuel FCF, potentially reaching over $24 in calendar year 2029.

Salesforce's current valuation presents another reason for optimism, trading at 21 times earnings, which is significantly below the large-cap software median. The analyst also anticipates that AI, particularly through Salesforce's Agentforce, could shift from being a perceived threat to a substantial advantage for the company.

The firm observes signs of growth stabilization at 8-9% year-over-year on a substantial revenue base exceeding $37 billion. Despite investor apprehension regarding potential M&A dilution, sentiment towards Salesforce is improving, and the stock remains relatively underowned.

The analyst points out that Salesforce's price-to-earnings (P/E) ratio has contracted to 27 times earnings, which is more than 30% below its 10-year average, suggesting an attractive relative valuation. InvestingPro analysis indicates that Salesforce is currently undervalued, with additional metrics showing a perfect Piotroski Score of 9, suggesting strong financial health.

With a perceived 22% upside to the $405 price target and a bull-case scenario of $465, the risk-reward profile for Salesforce is seen as favorable. Discover 14 additional exclusive ProTips and comprehensive valuation metrics with an InvestingPro subscription.

Lastly, Salesforce's extensive distribution capabilities are expected to facilitate the widespread adoption of AI across enterprises, while the company's multi-cloud platform strategy could benefit from an AI halo-effect, reinforcing the value of vendor data consolidation. The company's strong execution is reflected in its steady revenue growth of 9.53% over the last twelve months. Access the detailed Pro Research Report for Salesforce, along with 1,400+ other top stocks, exclusively on InvestingPro.

In other recent news, Salesforce.com has drawn significant attention with its recent product launches and financial performance. Guggenheim analysts downgraded Salesforce's stock from Neutral to Sell, setting a new price target of $247.00, citing concerns about the company's ability to effectively monetize its new product, Agentforce, and a potential shift in growth from 9-10% to a more realistic 5-7%.

However, other firms like Wedbush Securities, Truist Securities, and Stifel maintained their positive outlook on Salesforce, emphasizing the potential of its AI initiatives, particularly Agentforce 2.0, to boost revenue growth.

Salesforce's AI product, Agentforce 2.0, designed to perform complex tasks for humans, is set to capitalize on the projected $7 trillion digital labor market. The product is expected to be fully available in February 2025. Salesforce's financial health remains strong, boasting impressive gross profit margins of 76.94% and a perfect Piotroski Score of 9.

Despite the downgrade from Guggenheim, other firms like Goldman Sachs, Mizuho (NYSE:MFG) Securities, and BMO Capital Markets have reaffirmed their positive ratings on Salesforce. These recent developments reflect Salesforce's continued efforts to innovate and expand its product offerings in the AI sector. The company's strategic focus on AI and the introduction of products like Agentforce are expected to contribute positively to its valuation.

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