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“Low investor expectations vs potential top-line upside drivers in price increases, product bundling and Data Cloud adoption frame an attractive risk/reward for CRM,” analysts said.
The analysts attribute the recent rally in Salesforce shares – outperformed large-cap Software peers by more than 20% in 2023 – to a significant improvement in Salesforce’s profitability outlook. In this regard, they highlighted an 800+ basis points YoY expansion in operating margin.
While the bulk of the recent margin expansion is considered to be in the past, Morgan Stanley sees several factors that could contribute to potential top-line growth, surpassing current conservative investor expectations.
These factors include the solid realization of recent price increases, new solution bundling fostering the sales process, and the Data Cloud offering, which enables customers to prepare their increasingly valuable datasets for Generative AI-based use cases.
“Despite what we see as solid (and improving) positioning for Generative AI, the stock continues to trade at a discount to large cap Software peers on a growth-adjusted GAAP earnings basis, with shares trading at a 0.9X PEG ratio against our estimates of a ~33% GAAP EPS CAGR from CY23-CY26,” analysts explained.
“This presents a compelling risk-reward ahead, driving our upgrade to Overweight.”
Wells Fargo analysts lowered their rating on CRM stock yesterday.
Salesforce stock rose 2.2% in pre-market Thursday trade.
