There was a lot to like in Salesforce’s (CRM) latest quarterly statement, and investors reacted in kind. Shares trended higher in Wednesday’s session after the customer relationship management powerhouse beat expectations on both the top-and bottom-line and raised its earnings outlook for the year.
In Q1, revenue increased by 24% year-over-year to reach $7.41 billion compared to the $7.38 billion expected by Wall Street analysts. Adj. EPS of $0.98 also came in above the $0.94 consensus estimate.
While the company’s guidance for Q2 fell short of Street expectations, investors appeared to overlook the miss and focus on the fact the company raised its FY 2023 earnings guidance. Adj. EPS is expected to be in the range between $4.74- $4.76 compared to consensus at $4.66.
Assessing the quarter, Piper Sandler analyst Brent Bracelin says Sales Cloud was the “shining star once again.” “This more than offset another mixed quarter for data cloud where MuleSoft growth moderated sharply to 9% y/y vs. 24% last quarter,” the analyst went on to say.
With revenue expected to come in lighter than previously thought in Q2 and the full-year, Bracelin notes the growth profile is “not immune to FX headwinds and a tightening business cycle.”
That said, Bracelin also hails Salesforce’s “proven track record of navigating challenging environments.”
Plus, there were other things to like. Reaffirming management’s intention to deliver more operating efficiency, the operating margin improved 260+ basis points sequentially to 17.6% (compared to Bracelin’s 16.7% estimate). This was further reaffirmed by the outlook for the year, with the company calling for higher margins than previously expected – 20.4% vs. 20.0% – even in the face of a lower full-year revenue guide.
Bracelin sees a combination of factors which paint an encouraging picture. These include: “1) a better-than-feared outlook, 2) reaffirmation of the 20%+ margin target even on lower revenue, 3) multi-cloud momentum, and 4) a ruling out of large-scale M&A.”
And with CRM shares down 31% year-to-date, Bracelin believes the sell-off has created an “attractive risk-reward for a 20%+ FCF grower.”
Accordingly, the 5-star analyst reiterated an Overweight (i.e., Buy) rating on CRM, although given the “lower growth estimates,” the price target is lowered from $330 to $250. Should this figure be met, investors are looking at one-year returns of ~42%. (To watch Bracelin’s track record, click here)
Looking at the consensus breakdown, the Street is heavily behind this name. Barring 3 skeptics, all 28 other analyst reviews are positive, making the consensus view here a Strong Buy. In addition, the $241.90 average price target makes room for 37% gains in the year ahead. (See Salesforce stock forecast 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.
