On Tuesday, BofA Securities maintained a positive stance on Salesforce.com (NYSE:CRM), raising its price target to $350 from $300, while reiterating a Buy rating for the stock. This adjustment comes as a result of conversations with nearly a dozen key Salesforce partners, which indicate that deal activity for the customer relationship management giant has remained consistent with recent healthy levels.
The firm's analysis points to a spending environment that has shown signs of improvement, despite more challenging sales cycles which now often require additional executive approval. Key trends highlighted by BofA include stable Sales and Service Cloud transactions, balanced results across major industry verticals with a notable uptick in the financial sector, and a growing interest in Salesforce's Data Cloud.
BofA's outlook for Salesforce is bolstered by the expectation of sustained mid-teens top-line growth and a 200 to 250 basis point margin expansion over the next three years in an optimistic scenario. This could lead to a robust 31% compound annual growth rate in free cash flow (FCF) over the same period. Salesforce's performance has led BofA to identify it as an emerging quality Growth at a Reasonable Price (GARP) stock within the software sector, anticipating the company's shares will continue to re-rate higher alongside upward revisions to FCF growth projections.
The raised price objective to $350 is anchored in the anticipated fourth-quarter calculated remaining performance obligation (cRPO) upside. BofA has adjusted its enterprise value to FCF multiple from 22x to 25x, reflecting greater confidence in Salesforce's accelerating FCF growth.
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