Proactive Investors - Analysts at Canaccord Genuity (TSX:TSX:CF, LSE:CF) have raised their price target for Salesforce after the company posted better-than-expected fiscal fourth-quarter earnings, noting “reports of CRM’s death have been greatly exaggerated.”
In a note to clients, the analysts wrote that they had raised their price target to US$215 from US$185. Salesforce shares were trading up 12.8% at $188.84 late-morning on Thursday.
“Despite the year-to-date rally in CRM shares, investor expectations into Salesforce’s all-important FQ4 print were pretty low, so the upside surprise and strong margin guidance for F2024 were likely doubly rewarding,” they wrote.
“Perhaps most significantly, while the firm’s 10% growth guidance for F2024 is only OK and certainly mindful of a still challenging macro, Salesforce now expects to deliver 27% non-GAAP operating margins in F2024, which is roughly 450 bps of annual operating leverage, confirmation that commitments of the ‘new day’ Salesforce are seemingly here to stay.
“On top of this, CRM announced that it has doubled its current share repurchase program to $20 billion, or roughly 11% of market cap in aggregate, which perhaps is a nod to appease its activist investors.”
The analysts noted that, while it was too early to declare Salesforce “out of the woods,” this quarter was certainly a step in the right direction.
“Management is sending clear messaging on its profitable growth agenda, to the point that CRM has disbanded its M&A committee, and the firm intends to return essentially all of its current balance sheet to shareholders through buybacks,” they wrote.
They wrote that this is a business that should approach $35 billion in revenue this year, while still delivering double-digit growth in a tough environment, and it will now achieve intermediate margin targets two years early, with management suggesting this is a business that should operate in the 30%-plus margin range at least.
“If management can stick to the strategy, this feels about right for now, which means that CRM should advance more or less on pace with cash flow growth that we peg at least in the 15% to 20%-plus range over the next few years,” they wrote.
“That’s more than enough for a continued ‘Buy.’”