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salesforce (CRM) to Report Q2 Earnings: What's in Store?

Zacks Equity Research

salesforce.com Inc. CRM is slated to release second-quarter fiscal 2020 results on Aug 22.

Notably, the company delivered a positive surprise in all the trailing four quarters, the average being 37.6%.

In the last reported quarter, it came up with non-GAAP earnings of 93 cents per share, comprehensively exceeding the Zacks Consensus Estimate of 61 cents and also improving from the year-ago quarter’s 74 cents.

Management mentioned that mark-to-market adjustments of the company’s strategic investments boosted earnings by 27 cents per share.

Revenues of $3.74 billion increased 24% year over year and also surpassed the Zacks Consensus Estimate of $3.68 billion. Moreover, the top line improved 26% at constant currency (cc).

What to Expect in Q2

For second-quarter fiscal 2020, revenues are projected between $3.94 billion and $3.95 billion.

The Zacks Consensus Estimate for sales of $3.95 billion indicates around 20.4% growth from the prior-year reported number.

Non-GAAP earnings are expected in the range of 46-47 cents per share. The Zacks Consensus Estimate for earnings in the quarter to be reported is pegged at 47 cents, implying a decline of 33.8% from the year-ago reported figure.

salesforce.com, inc. Price and EPS Surprise

salesforce.com, inc. Price and EPS Surprise

salesforce.com, inc. price-eps-surprise | salesforce.com, inc. Quote

So, let’s see how things are shaping up prior to this announcement.

Factors at Play

salesforce’s results for the fiscal second quarter are likely to benefit from a robust demand environment as customers are undergoing a major digital transformation. The rapid adoption of the company’s cloud-based solutions is a tailwind.

Notably, salesforce’s strong product portfolio is helping it drive robust growth in Subscription and Support revenues, which constitutes majority of its revenues.

The company’s performance is also likely to be driven by a solid partner ecosystem. In the last reported quarter, partners were involved in 63% of the company’s new business wins. Moreover, strong growth in the international market, aided by its expanding partner base, is an upside.

Additionally, the company will continue benefiting from its strategic acquisitions. Its takeover of MuleSoft, which contributed $170 million in the fiscal first quarter, is a major positive. Further, the buyout of Salesforce.org is likely to generate approximately $40-$50 million revenues in the July quarter.

In this regard, it is worth mentioning that during the quarter, the company announced the biggest acquisition in its history that is, the big data firm Tableau Software. The company is expected to update its revenue guidance for fiscal 2020, taking into consideration larger contribution from Tableau, which closed on Aug 1, 2 months earlier than planned.

However, salesforce’s major outage and system failure in May 2019 might negatively impact its new business wins as well as the selling of additional products to its existing customers. This makes us apprehensive about its results in the soon-to-be-reported quarter.

Moreover, transaction expenses associated with the consolidation of Salesforce.org is likely to put bottom line under pressure this earnings season. Further, adverse foreign exchange volatility is a persistent overhang.

What the Model Says

The proven Zacks model conclusively shows that a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has significantly maximum chances of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

salesforce currently has a Zacks Rank of 4 and an Earnings ESP of -2.00%, which together make surprise prediction difficult for the stock this reporting cycle.

Stocks to Consider

Following are a few stocks worth considering with the right mix of elements to beat estimates this earnings season:

The Cooper Companies, Inc. COO has an Earnings ESP of +1.50% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Burlington Stores, Inc. BURL has an Earnings ESP of +1.13% and a Zacks Rank of 2.

Carter Bank & Trust CARE has an Earnings ESP of +3.85% and is Zacks #2 Ranked.

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