Is Salesforce a Buy Following Disappointing Outlook? Analyst Weighs In

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The stock market is a hard beast to please sometimes. Salesforce (CRM) delivered the goods in FQ3 and even raised its FY22 revenue outlook, however, the shares trended south following the quarter’s earnings as investors focused on the software maker’s FQ4 forecast which did not quite match the Street’s expectations.

For the fourth quarter, the company anticipates reporting earnings of $0.72 to $0.73 per share, below the analysts’ call for earnings of $0.82 a share. The company’s forecast for revenue in the range of $7.22 billion to $7.23 billion also fell just short of the Street’s $7.24 billion estimate.

Nevertheless, the company’s FQ3 top-and bottom-line results both came in above the estimates. Revenue increased by 26.6% from the same period last year to $6.86 billion, beating the Street’s call by $60 million. Non-GAAP EPS of $1.27 came in $0.35 higher than Wall Street’s forecast.

Along with the earnings, the company announced that president and chief operating officer Bret Taylor will become co-chief executive officer alongside Marc Benioff.

With his background in product, Deutsche Bank’s Brad Zelnick considers the new appointment a “very natural successor” to Benioff. In fact, the analyst thinks some investors might have felt letdown that Taylor did not take the “sole role more immediately, as he is well liked for his ingenuity and operational discipline.”

Overall, while Zelnick applauds a “solid” quarter, the analyst notes it was not quite as spectacular as F2Q’s “blowout” performance. However, Zelnick’s positive thesis for CRM remains intact and the 5-star analyst recommends investors load up on shares “on any pullback.”

More than that, with the digital transformation well and truly underway and considering Salesforce’s positioning in an industry with an “enormous” $248 billion TAM, Zelnick thinks the market “underappreciates the long-term opportunity in front office applications, Salesforce’s leadership of the category, and the scale at which it is succeeding.”

Accordingly, Zelnick reiterated a Buy rating for CRM shares, backed by a $360 price target. Investors are looking at upside of 36% from current levels. (To watch Zelnick’s track record, click here)

Most of Zelnick’s colleagues agree; based 27 Buys vs. 4 Holds, the stock boasts a Strong Buy consensus rating. While the $336.38 average target is lower that Zelnick’s, the figure still offers one-year upside of 28%. (See Salesforce stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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