Salesforce stock soars toward best day in nearly two years after earnings called ‘major relief for tech investors’

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An earlier version of this article erroneously stated the position of Wednesday’s stock gain compared to other historical gains. Updated.

Shares of Salesforce Inc. they were heading for their best day in nearly two years on Wednesday, after Wall Street analysts described the software company’s profits as “better than feared” and applauded a prospect that balanced prudence and optimism.

Salesforce CRM,
+ 11.15%
shares rose up 15% on Tuesday to an intraday high of $ 184.42. While earnings were down about 11% later in the session, this would still be good enough for its best one-day gain since August 26, 2020, when stocks broke a record. 26% after the quarterly results that were turbocharged by companies that rushed to the coast. increase their digital footprints as the COVID-19 pandemic ravaged the world. The stock had the best performance in both the S&P 500 SPX index,
and the Dow Jones Industrial Average DJIA,

Stock gains were in opposition to the larger market. The IGV ETF of the iShares extended technology software sector,
+ 1.35%
up 1.3%, S&P 500 down 0.4%, high-tech Nasdaq Composite Index COMP
fell 0.3% and Dow Average fell 0.4%

Salesforce modestly exceeded Wall Street estimates for the quarter on Tuesday afternoon, and executives boosted their earnings forecasts for the year as they cut revenue prospects due to a higher dollar, eliminating fears that headwinds could harm the business in the future. Prior to the report, analysts had expressed concern that economic uncertainty would slow business spending and weigh on the business software industry.

Like a sigh of collective relief, at least four Wall Street analysts specifically described Tuesday’s Salesforce report as “better than feared”: Wedbush analyst Daniel Ives, the Citi Research analyst Tyler Radke, Mizuho analyst Gregg Moskowitz and Jefferies analyst Brent Thill. who even titled his note “Better Than Feared.” All have stock buy ratings except Radke, which has a neutral rating.

Ives de Wedbush, who has a target price of $ 225 per share, said the Salesforce report is “a great relief for technology investors, as it shows that the company’s core demand is holding up well despite the macro and geopolitical eddies “.

“As one of the main indicators of tech and off-quarter earnings, the street focused on Salesforce numbers and Benioff’s comments to see any significant indication of weak business spending,” Ives said.

Citi’s Radke, which has a $ 182 price target, said that after thinking about it, “we see that Salesforce’s results are slightly positive and demand trends are holding up well.”

The increase in Salesforce’s margin forecast, however, reflects “a more conservative spending stance, which is positive but could also be a sign of less confidence in growth,” he said.

We note that the implicit increase in operating margins from 17.6% in Q1 to> 20% in Q4 implies a much slower growth in operating expenses in 2H (low teens), which would be anemic by historic Salesforce standards and could explain the recent press reports on hiring freezes and a marked decline in job offers, “Radke said.

Although Salesforce executives expressed an optimistic outlook, his stance was cautious. The company raised its operating margin outlook by 40 basis points, indicating more conservative domestic spending, and dispelled rumors of a freeze on hiring, noting that hiring was now “at a much more measured pace.”

Full earnings coverage: Salesforce outlook widened, with stronger dollar seen as the only big headwind

Mizuowitz of Mizuho, ​​which has a $ 225 price target, said he was “surprised that management has increased its non-GAAP OM targeting for fiscal year 2023 to 20.4% (compared to ~ 20 % previous), and this continues including a wind against 100-125 bp of M&A. ”

Thill of Jefferies, which has a $ 260 price target, said the macro environment remains harsh and that “cyber names and infrastructure tend to be more resilient than applications in a macro crash” and that “it will be vigilant.” spending on applications and pipelines “. in the coming quarters ”.

While the company has about $ 13.5 billion in cash and securities, executives rejected questions from analysts about the possibility of buying shares that are almost 50% below its November 8 closing record of $ 309.96 . Since its IPO in June 2004, Salesforce, which currently has about 990 million shares outstanding, has bought a total of 66,000 shares, according to FactSet data.

“Right now, our overall focus is to strengthen our balance sheet to really take advantage of every opportunity before us,” Salesforce Chief Financial Officer Amy Weaver told analysts on the call.

Salesforce also has no plans for mergers and acquisitions as it approaches its first anniversary of the acquisition of Slack Technologies.

“At the moment, we’re not really thinking about making any major acquisitions – it’s not part of our game book right now,” Marc Benioff, president and chief executive officer of Salesforce, told analysts in Tuesday night’s call. “We are very focused on integrating what we have. We still have a lot of work to do, and that’s our main goal. “

Cowen analyst Derrick Wood, who is a top performer and a target price of $ 225, avoided the phrase “better than feared” and considered the report primarily in line with “some possibilities.”

Wood said the increase in margin prospects “in addition to the absence of mergers and acquisitions in current playbooks, shows a growing commitment to margins, which we see positively for stocks.”

See also: The chances of a market-led recession coming earlier than expected grow, say investors and traders

JP Morgan analyst Mark Murphy, who has an overweight rating and a target price of $ 275, called Salesforce “a model of resilience, projecting stability into a more volatile macro.”

“In our view, investors have been preparing for an impending slowdown / recession and were probably expecting some caution with the macro, the slippage signs of the European agreement or the smoothing of the pipeline,” Murphy said. “We believe that the positive net macro comment from Salesforce could lead investors to reconsider reduced growth-oriented software stocks, perhaps increasing confidence in a short-term rebound.”

Over the past 12 months, Salesforce shares have fallen 25%, while the IGV ETF has fallen 20%, the S&P 500 has fallen 3%, the Nasdaq has fallen 13% and the Dow has fallen 5 %.

Of the 49 analysts covering Salesforce, 44 have buy ratings and five have hold ratings, of which 26 lowered their price target on Wednesday, while three raised theirs, resulting in an average target price of 245, $ 71, down from the previous $ 264.46, according to FactSet data.

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