Key points
- Salesforce.com reported a strong quarter, with margin improvement leading to robust cash flows.
- The company has initiated a dividend that is expected to grow over time.
- Analysts are raising their price targets and pushing the market higher.
- 5 stocks we like better than Salesforce
Salesforce.com New York Stock Exchange: CRM The stock price is having trouble maintaining traction following Q4 results and guidance, but a massive correction isn’t expected for this tech stock. The results didn’t catalyze a rally, but they are good news for investors. The bottom line is that the cloud continues to grow, and Salesforce.com is a leading provider of AI-powered capabilities. Its new Einstein 1 platform is the first comprehensive set of customer relationship management tools, and business is good.
Business is so good that Salesforce.com has followed suit Meta platform NASDAQ: META lead and initiated a dividend. The payment is worth $0.40 per quarter or $1.60 per year, a yield of about 0.5% with shares at $300, and is expected to grow over time. This payment is a meager 17% quarterly and annually, and the balance sheet is a fortress.
Among the many indicators is the board’s decision to increase share repurchase authorization by $10 billion, or 3.4% of market capitalization. Repurchases in the fourth quarter were worth $1.7 billion, resulting in an 80 basis point reduction in the share count year over year.
Salesforce Has a Solid Quarter; It offers mixed guidance
Salesforce.com reported a strong quarter, with revenue and earnings beating analyst consensus. The company posted revenue of $9.29 billion, a gain of 10.9%, beating consensus by 75 basis points. The strength is entirely driven by the core business, Subscriptions and Services increased 12% while Pro fell 9%. Current and total RPOs, key business metrics, increased 12% and 17%, respectively.
The margin news is very impressive. Revenue growth, higher price realization and AI efficiency have driven significant margin improvement. Adjusted operating margin improved nearly 1,000 basis points to 31.4% and is expected to expand further in F2025. The net result is leveraged earnings and cash flow. Cash flow improved by 22%, free cash flow by 27%, and adjusted earnings by 36%.
The guidance is lower than analyst consensus, but calls for solid revenue growth of 8% to 9% year-over-year and may be conservative. The factor helping to support the market is the expected increase in margin and its impact on capital return prospects, which is positive. The margin is expected to widen by an adjusted 110 basis points and that may even be a conservative forecast.
Analysts Step Up and Raise Targets for Salesforce.com
Analyst activity is decidedly bullish following the release. Marketbeat.com tracks reviews from nearly a dozen of the thirty-six analysts who follow the stock, and all are favorable. The only ones that do not include a price target increase are the reiterated ratings, which all equate to a Moderate Buy rating. The consensus target continues to lag the market, but is up 45% year-over-year and rising, with most new revisions well above $300. A move to $300 aligns with the all-time high; a move above it sets a new high and opens the door for a sustained rally in 2024.
The upshot of this chatter is that, macro challenges aside, there are strong trends in cloud and AI driving business. Since Einstein represents a small portion of the guidance, there is a significant chance it will lead to outperformance in 2024. In the long term, AI is seen as a takeover opportunity for cloud-focused companies and Salesforce.com is a leading player with the ability to generate revenue now.
The Technical Outlook: Salesforce.com is at a critical juncture
Salesfoce.com saw strong upside in 2023 and 2024, but may have peaked. The market is struggling with resistance near the all-time high and may enter a consolidation before continuing higher. In this scenario, the price action could move back to the $280 level, but the support is expected to be strong. A move below $280 could lead to a deeper selloff, but it is not likely. The critical resistance point is near $310.
Before you consider Salesforce, you’ll want to hear this.
MarketBeat tracks daily Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and Salesforce wasn’t on the list.
While Salesforce currently has a “Moderate Buy” rating among analysts, top-rated analysts believe these five stocks are better buys.
View the five stocks here
Wondering when you can finally invest in SpaceX, StarLink, or The Boring Company? Click the link below to find out when Elon Musk will finally allow these companies to IPO.
Get this free report