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Bull of the Day: Salesforce (CRM)

Benjamin Rains

Salesforce (CRM) rose to prominence in the tech world for its ability to empower businesses, big and small, to operate in an ever more digital world. The software as a service company currently boasts over 150,000 clients and has expanded into new growth areas such as artificial intelligence.

Overview

Salesforce seems like an attractive buy at the moment for many reasons that we will dive into. The key takeaway, however, is that Salesforce enables its customers to run modern, cloud-focused businesses that would otherwise require a ton of in-house talent, infrastructure, maintenance, and more. This means that Salesforce’s clients are likely to continue to spend money on subscription-focused customer relationship management services in order to remain competitive in today’s business environment.

So as long as the San Francisco-based firm can please its current customers, attract new ones, and innovate, Salesforce should be able to grow for years to come.

Marc Benioff’s company is already one of the largest players in the quickly-expanding customer relationship management industry. Salesforce offers its business clients a wide range of sophisticated web-based platforms to help run sales, marketing, e-commerce, analytics, and much more.

Salesforce’s clients include Activision (ATVI), American Express (AXP), Intuit (INTU), and other well-known companies. The tech firm also offers Microsoft (MSFT) Office-style products to help it compete against MSFT and Google (GOOGL).

Shares of CRM are up over 43% in the last year and have bounced back to right around their 52-week highs during the past month and a half. We can also see that Salesforce has consistently outperformed its peer group—which includes Adobe (ADBE), Oracle (ORCL), and VMware (VMW)—since around the start of 2018.

 

Q4 Outlook & Earnings Trends

Looking ahead, our current Zacks Consensus Estimate calls for Salesforce’s Q4 fiscal 2019 revenues to climb 24.9% to reach $3.56 billion. This would fall roughly in line with last quarter’s 26% top-line surge—which beat estimates—and top the year-ago period’s 24% expansion. Plus, CRM’s full-year revenues are projected to climb over 26% from $10.48 billion to reach $13.24 billion and top fiscal 2018’s 25% climb.

At the bottom end of the income statement, Salesforce’s adjusted Q4 earnings are projected to soar 60% to reach $0.56 per share. Last quarter, the company posted adjusted earnings of $0.61 a share, which crushed our $0.50 EPS estimate that would have marked a 28% jump.

Meanwhile, Salesforce’s adjusted full-year earnings are expected to skyrocket by over 93%. Investors should also note that CRM’s fiscal 2019 earnings estimate has come up by 4% over the last 90 days. The company’s fiscal 2020 EPS picture has also turned more positive, which is often a good sign since at least some analysts are higher on Salesforce’s bottom-line.

 

Growth

Clearly, we can see that Salesforce’s top-line growth outlook appears to be strong and steady. This might please some tech investors even more with Apple (AAPL) headed for a downturn and Amazon (AMZN) set to slow. The company also looks poised to grow its bottom-line even as it spends more money on analytics tools and AI.

Salesforce last year introduced a new wrinkle to its Einstein artificial intelligence system called Einstein Voice, which allows users to conversationally update tasks. Innovations like these could not only attract more clients but also become standard across the industry.

On top of that, Salesforce's $6.5 billion acquisition of MuleSoft last year should help the firm expand its client base and top line as it integrates MuleSoft’s technology that helps link disparate applications. And a quote from co-CEO Keith Block captures the core of why Salesforce seems like an attractive stock to consider right now. “Companies across every industry, in every geography have a mandate to digitally transform their businesses and are turning to Salesforce as a strategic partner,” Block said in prepared statements last quarter.

Bottom Line

Salesforce and its SaaS model means that a bulk of its clients pay installment-based fees. This means there is less money up front, but it also helps create a more stable business. Let’s also not forget how popular and ubiquitous this software as a service model has become in the business world.

Salesforce is a Zacks Rank #1 (Strong Buy) at the moment that sports a “B” grade for Growth in our Style Scores system. CRM also has a strong history of earnings beats.

The company is currently projected to report its Q4 fiscal 2019 financial results on Wednesday, February 27.

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