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On Monday, Wolfe Research adjusted its outlook on Salesforce.com (NYSE:CRM), raising the price target to $320 from the previous $305, while maintaining an Outperform rating on the stock. The firm acknowledges the recent slowdown in revenue growth for Salesforce, which has decelerated from mid-20% to high-single-digits.
This decrease has been attributed to a range of factors including the COVID-19 pandemic's impact on expansion within Salesforce's installed base, turnover in sales leadership due to execution issues, and the global macroeconomic pressures that have restrained the expansion of large enterprises.
Despite these challenges, Wolfe Research notes Salesforce's pivot towards profitability, which has led to a re-rating of its shares. The firm anticipates further upside to the company's free cash flow (FCF) and earnings per share (EPS) targets.
This optimism is partly due to Salesforce's entry into a new product cycle with GenAI, which is expected to introduce new products, pricing, bundling, and SKU upgrades that could bolster growth.
Wolfe Research also sees potential for Salesforce's adoption of new products and its sustained pricing power to contribute to durable top-line growth. The firm expects margins to continue improving, especially as the risk of dilutive large-scale mergers and acquisitions (M&A) seems to be waning. Nevertheless, Wolfe Research cautions that there are still risks facing Salesforce, including macroeconomic headwinds, the possibility of further executive turnover, large-scale M&A, and execution challenges.
In other recent news, Salesforce.com Inc (NYSE:CRM) has been receiving attention from various analyst firms following its robust second-quarter earnings. The company reported earnings per share of $2.56, an 8% increase in sales, and a 9% rise in subscription and support revenues.
Salesforce also acquired Zoomin, a company specializing in unstructured data management, and Own Company, a provider of data protection and management solutions, for $1.9 billion in cash.
Wedbush maintained a positive outlook on Salesforce, raising the stock's price target to $325 from $315, reflecting increased confidence in the company's growth prospects. This was driven by strong customer feedback and the company's potential in the AI solutions sector.
Piper Sandler upgraded the stock from Neutral to Overweight, anticipating a significant rise in Salesforce's free cash flow per share. However, Erste Group and TD Cowen downgraded the stock to Hold due to projected slower growth.
Salesforce has launched Agentforce, an AI-driven suite of autonomous bots, and reported a 130% year-over-year growth in its paid customer base. The company also formed a partnership with IBM (NYSE:IBM) to integrate advanced AI capabilities into its platform. These are among the recent developments in Salesforce's ongoing efforts to remain at the forefront of the customer relationship management industry.
InvestingPro Insights
Complementing Wolfe Research's analysis, InvestingPro data reveals that Salesforce's market capitalization stands at an impressive $275.09 billion, underscoring its significant position in the software industry. The company's revenue for the last twelve months reached $36.47 billion, with a notable revenue growth of 10.26% over the same period. This growth, while slower than historical rates, aligns with Wolfe Research's observations about the company's recent deceleration.
An InvestingPro Tip highlights Salesforce's "impressive gross profit margins," which is corroborated by the data showing a gross profit margin of 76.35% for the last twelve months. This robust profitability metric supports Wolfe Research's positive outlook on the company's pivot towards profitability and potential for margin improvement.
Another relevant InvestingPro Tip notes that Salesforce is "trading at a low P/E ratio relative to near-term earnings growth." With a current P/E ratio of 49.34 and a forward P/E ratio of 45.66, coupled with a remarkably low PEG ratio of 0.19, this suggests that the stock may be undervalued relative to its expected earnings growth. This aligns with Wolfe Research's expectation of further upside to Salesforce's EPS targets.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips on Salesforce, providing a deeper understanding of the company's financial health and market position.
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