Salesforce is looking attractive, says Roth Capital

After reviewing third quarter results from Salesforce.com (Salesforce.com Stock Quote, Charts, News, Analysts, Financials NYSE:CRM), Roth Capital Partners analyst Richard K Baldry stuck with a “Buy” rating on the stock in a Thursday note to clients. Baldry said the severe pullback on CRM has put it onto the list of attractively-priced stocks.

Salesforce, the leader in customer relationship management solutions, announced its Q3 fiscal 2023 financials on Wednesday for the period ended October 31, 2022. The company posted revenue up 14 per cent year-over-year to $7.84 billion and non-GAAP EPS of $1.40 per share compared to $1.27 per share a year earlier.

The other news from Salesforce on Wednesday was the announcement that Bret Taylor will be stepping down as co-CEO effective January 31, 2023. The news came one year after Taylor had been promoted from President and COO to the co-top spot, while prior to that, former co-CEO Keith Block was in the role for just 18 months. 

“Our customers are tapping into the power of Customer 360 to gain faster time to value and reduce costs,” said Taylor in the company’s third quarter press release. “We continued to drive profitable growth in the quarter, and we are closing more transformational deals and multi-cloud expansions.”

First on the executive shake-up, Baldry said the announcement represents a sentiment dampener, pointing out the prior disruption with Block’s departure as well as the recent announcement that Chief Revenue Officer Gavin Patterson would be leaving in January.

“We view elevated executive churn at CRM as an increasing sentiment headwind that may not be fixable under the leadership of its founding CEO,” Baldry wrote.

On Salesforce’s quarter, Baldry said the $7.84 billion in revenue arrived essentially in-line with his estimate at $7.83 billion, while EPS at $1.40 well-exceeded his forecast at $1.21 per share. 

As well, Baldry pointed to management’s reluctance to provide fiscal 2024 Q1 or full fiscal 2024 guidance (appealing to rising currency and macro headwinds as factors) as an issue to flag, one that increases the risk in his forecasts on CRM.

But Baldry ultimately kept his “Buy” on Salesforce, since its positioning in the Cloud and SaaS sector offers a “compelling value proposition,” even during the currently volatile economic period.

“With its Sales and Marketing cloud broadly focused on revenue growth, and its Service Cloud capable of improving client costs, we believe CRM should prove more resilient in terms of elevated growth (above ten per cent annually with foreign exchange dampeners excluded) throughout an economic downturn,” Baldry wrote.

With his update, Baldry maintained a target price of $242 on CRM, representing at press time a projected one-year return of 51 per cent.

“Overall, while we no longer view CRM as warranting a premium valuation, we believe its severe value compression (down nearly 50 per cent versus its 52-week highs to trade at 5.1x run-rate revenues) offers an attractive entry point for long-term investors,” he said.