On Thursday, CFRA, a leading financial research firm, increased its price target for Salesforce.com (NYSE:CRM) shares to $343 from the previous $300, while sustaining a Strong Buy rating on the stock. The adjustment reflects the firm's optimism about Salesforce's prospects, despite some challenges in revenue acceleration.
The revised 12-month price target is based on a price-to-earnings (P/E) ratio of 27 times, which remains unchanged. The target shift aligns with CFRA's calendar year 2026 earnings per share (EPS) estimate, which is now set at $12.69. This projection falls below the company's peers and historical averages. CFRA has maintained its fiscal year 2025 (ending in January) EPS forecast at $10.07, and the fiscal year 2026 estimate at $11.10.
CFRA's analysis acknowledges that Salesforce has underperformed in terms of top-line growth, noting that the year-over-year growth rate of 8.4% in the July quarter was the slowest ever recorded for the company. Nonetheless, CFRA points out that Salesforce has exceeded expectations in bottom-line execution.
Despite some potential risks, such as organizations opting for a do-it-yourself approach with alternative AI solutions like Llama, or challenges to Salesforce's subscriber model due to customer productivity improvements, CFRA is confident. The firm anticipates that Salesforce's usage-based pricing strategy will adequately compensate for these headwinds.
In other recent news, Salesforce.com Inc (NYSE:CRM) reported strong second-quarter earnings, with earnings per share of $2.56, an 8% increase in sales, and a 9% rise in subscription and support revenues. The company also acquired Zoomin, a firm specializing in unstructured data management, and Own Company, a provider of data protection and management solutions, for $1.9 billion in cash.
Analyst firms Piper Sandler and Wolfe Research have maintained an Overweight and Outperform rating respectively, emphasizing Salesforce's potential for margin expansion and free cash flow growth. However, Erste Group and TD Cowen have downgraded the stock to Hold due to projected slower growth.
Salesforce has also launched Agentforce, an AI-driven suite of autonomous bots, and reported a 130% year-over-year growth in its paid customer base. The company has formed a partnership with IBM (NYSE:IBM) to integrate advanced AI capabilities into its platform.
InvestingPro Insights
To complement CFRA's analysis, InvestingPro data offers additional insights into Salesforce's financial position. The company's market capitalization stands at an impressive $278.45 billion, reflecting its significant presence in the software industry. Salesforce's P/E ratio of 50 (adjusted to 46.19 for the last twelve months) aligns with CFRA's assessment of the company's valuation relative to its earnings potential.
InvestingPro Tips highlight Salesforce's strong financial health, noting that it has a perfect Piotroski Score of 9, indicating robust operational efficiency and financial stability. This score supports CFRA's optimistic outlook on the company's future performance. Additionally, Salesforce boasts impressive gross profit margins, which stood at 76.35% for the last twelve months, underscoring the company's ability to maintain profitability even as it navigates slower revenue growth.
While CFRA focuses on Salesforce's AI strategy as a potential growth driver, InvestingPro Tips point out that the company is trading at a low P/E ratio relative to its near-term earnings growth. This suggests that the market may not have fully priced in the potential impact of Salesforce's AI initiatives, which could present an opportunity for investors.
For readers interested in a more comprehensive analysis, InvestingPro offers 11 additional tips on Salesforce, providing a deeper dive into the company's financial health and market position.
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