On Thursday, Evercore ISI adjusted its outlook on Salesforce.com (NYSE:CRM) shares, reducing the price target to $300 from the previous $330, while sustaining an Outperform rating on the company's stock.
The revision follows Salesforce's latest earnings report, which revealed revenues at the lower end of the forecast and weaker-than-expected bookings, attributed to a challenging macroeconomic climate and internal go-to-market (GTM) changes.
The report highlighted a "messy quarter" for Salesforce, with the top-line guidance raising questions about whether it is sufficiently conservative in light of the pressures on the stock in after-market trading.
Despite uncertainties in the macro backdrop and softer performance in the first fiscal quarter, Evercore ISI remains optimistic about Salesforce's margin expansion and free cash flow (FCF) growth story.
The firm believes the risk of Salesforce's subscription revenue growth falling below 10% is already factored into the current valuation.
Salesforce management has noted a moderation in the macro environment, including longer sales cycles, deal compression, and increased budget scrutiny.
However, the company has reiterated its revenue guidance for the fiscal year, banking on factors like recent pricing and packaging changes, industry momentum, and strength in its Data Cloud offering.
The maintained guidance assumes that the economic conditions experienced in the first fiscal quarter will not improve for the rest of the year.
The analyst firm also pointed out that Salesforce's margin guidance has been preserved at approximately 32.5%. This maintenance indicates a continued emphasis on cost control, which is expected to remain a top priority given the current economic situation.
Evercore ISI suggests there might be potential for upside in the margin guidance, as Salesforce stays focused on growing FCF per share without any significant changes to its outlook.
InvestingPro Insights
According to the latest InvestingPro data, Salesforce.com (NYSE:CRM) boasts a robust market capitalization of $263.47 billion. The company's financial health is reflected in its perfect Piotroski Score of 9, indicating strong financial conditions and operational efficiency. Despite trading at a high earnings multiple with a P/E ratio of 63.87, Salesforce has demonstrated a significant revenue growth of 11.18% over the last twelve months as of Q4 2024, underlining its capacity for expansion even in a challenging economic climate.
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