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BMO maintains $335 stock price target on Salesforce amid acquisition talks

Published 16/04/2024, 15:30
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On Tuesday, BMO Capital Markets maintained its Outperform rating and $335.00 price target for Salesforce.com, Inc. (NYSE:CRM). The firm discussed Salesforce's potential acquisition of data management company Informatica, analyzing the strategic fit and financial implications of such a deal.

The analyst from BMO Capital Markets shared insights on the proposed acquisition, noting the strategic alignment, particularly in the area of Master Data Management. However, concerns were raised regarding the capital opportunity cost, growth potential, valuation, and the messaging from Salesforce management.

Salesforce is reportedly in discussions to acquire Informatica, to enhance its data management capabilities. While the strategic benefits are acknowledged, the analyst expressed reservations about the impact on Salesforce's growth trajectory and capital allocation.

According to consensus estimates, Informatica is expected to achieve revenue growth of approximately 6.5% in the calendar year 2024 and 7.1% in the calendar year 2025. These figures are slightly lower than BMO's estimates for Salesforce's revenue growth, which are projected at 8.8% year-over-year for the fiscal year ending in January 2025 and 9.3% year-over-year for the fiscal year ending in January 2026.

The acquisition could potentially dilute Salesforce's growth by about 10 basis points in fiscal year 2026 on a pro forma basis.

In terms of profitability, Informatica reported a 29% operating margin in calendar year 2023, with consensus estimates predicting margins of 32.1% for calendar year 2024 and 32.8% for calendar year 2025. BMO suggests that integrating Informatica could be marginally dilutive to Salesforce's operating margins by about 10 basis points in fiscal year 2026, estimating a pro-forma operating margin of 33.9% compared to Salesforce's projected margin of 34.0%.

However, the acquisition is not expected to be significantly dilutive to margins, as was the case with some of Salesforce's previous mergers and acquisitions.

The firm also believes that Informatica's free cash flow (FCF) margin is similar to that of Salesforce, indicating that the deal would likely not be detrimental to Salesforce's margin profile. The analyst concluded that while the acquisition may not significantly boost growth, it also would not be notably dilutive to Salesforce's financials.

InvestingPro Insights

BMO Capital Markets' recent analysis of Salesforce.com (NYSE:CRM) and its potential acquisition of Informatica highlights strategic considerations and financial implications. In tandem with this analysis, insights from InvestingPro can provide additional context for investors. Salesforce has a Piotroski Score of 9, indicating strong financial health, and it has been noted for its prominent position in the Software industry, as well as for its ability to cover interest payments with its cash flows. Additionally, Salesforce is trading at a high earnings multiple, with a P/E ratio of 65.15, suggesting investor confidence in its future earnings potential.

InvestingPro Data reveals that Salesforce has a market cap of $268.31 billion and has experienced a revenue growth of 11.18% over the last twelve months as of Q4 2024. The company's gross profit margin stands impressively at 75.5%, indicating efficient operations and a strong ability to generate profits from its revenues. Moreover, with a high return of 55.21% over the last year, Salesforce has rewarded investors handsomely.

For investors seeking a deeper dive into Salesforce's financials and strategic positioning, InvestingPro offers additional tips and metrics. There are 13 more InvestingPro Tips available, which can be explored to gain a comprehensive understanding of the company's performance and valuation. To access these insights and further enhance your investment strategy, consider subscribing to InvestingPro using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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