salesforce.com, Inc. (NYSE:CRM) Earnings Preview: Heffx Optimistic
Salesforce (CRM) is set to release its earnings this Thursday after market close, and ahead of the print Heffx CEO, Shayne Heffernan has reiterated his buy rating on CRM, with his price target remaining at around the $200 mark. With the stock up 9.35% year-to-date, our price target still indicates upside potential of around 10%.
Here’s what we are looking for on Thursday:
We have currently adjusted our financial model for fiscal 1Q below the consensus expectation at $4.810B (+29% Y/Y) on increased conservatism for MuleSoft transactional revenues. We have also lowered our cRPO (current remaining performance obligation) estimates to $14.4B (+22%) below previous guidance for 23-24% growth.
“For the complete year we reduce MuleSoft revenue growth (from +42% to +14%) and bookings estimates (from -5% to -9%). These changes move our FY21 total rev estimates of $20.735B (+21% Y/Y) that is below guidance but above consensus.”
Overall, we strike an optimistic tone, telling investors: “We are positive on CRM ahead of the company’s F1Q report, and while the company isn’t immune to global demand trends, we see Service Cloud, Commerce Cloud, Healthcare, FinServ and phone Tracing driving bookings momentum.”
We also see a meaningful opportunity for Contact Tracing + Service Cloud sales to the government and large enterprise, adding “Specific to the quarter, we heard of solid wins in HC and Fins with no evidence of desperation or material discounting at the end of the quarter.”
We believe the company has instituted a 2x SPIF (double commissions) on all deals signed in F2Q. Given current valuation of ~6x CY21E revenue vs. high efficiency peers at ~16x CY21E revenues and ~37x FCF, we have a tendency to like the risk/reward.
Based on the last three months of ratings, Salesforce boasts a strong buy analyst consensus with 14 strong buy and 23 buy ratings vs just 4 hold ratings and 0 strong sell and 1 sell rating. meanwhile the average analyst price target works out at $194.63, indicating upside potential of 9%.
Shayne Heffernan Trade Idea
If you look at Salesforce on a pure earnings basis, the stock usually tends to look expensive. Next year, for example, consensus estimates have Salesforce earning just shy of $4 per share. That would put the stock at more than 40x forward earnings. However, keep in mind that Salesforce tends to plow its earnings back into the business via marketing spend. In doing so, it gives up accounting profits now in return for far larger revenues and cash flows in the future.
Thus, the most reliable way to judge Salesforce’s stock is by its price-to-sales ratio. Coming out of the financial crisis, CRM stock sold for just 4x sales — a veritable bargain. It shot up to 11x revenues in 2011-12, and became somewhat overpriced for a time.
Since 2013, however, the stock has settled into a remarkably consistent range, with Salesforce almost always being worth between 7x and 9x sales. Any dips to 7x or below have been strong buying opportunities. Meanwhile, when it has gotten up above 9x — such as late last year — it was a good time to take some profits. The stock is now selling at 8.5x sales, which puts it within the normal range; a correction that knocked the stock down 10% from here would move it toward a compelling buying point. But the current price isn’t half bad, either.” Shayne Heffernan PhD in Economics
Overall, the bias in prices is: Upwards.
Note: this chart shows extraordinary price action to the upside.
By the way, prices are vulnerable to a correction towards 165.64.
The projected upper bound is: 198.10.
The projected lower bound is: 159.09.
The projected closing price is: 178.60.
A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 4 white candles and 6 black candles for a net of 2 black candles. During the past 50 bars, there have been 29 white candles and 21 black candles for a net of 8 white candles.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 78.5464. This is not an overbought or oversold reading. The last signal was a sell 7 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 60.85. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 47 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 67. This is not a topping or bottoming area. The last signal was a sell 7 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 0 period(s) ago.
Rex Takasugi – TD Profile
SALESFORCE COM closed up 2.590 at 177.850. Volume was 43% below average (neutral) and Bollinger Bands were 3% narrower than normal.
Open High Low Close Volume 176.600 178.570 175.460 177.850 984,428
Technical Outlook Short Term: Neutral Intermediate Term: Bullish Long Term: Bullish
Moving Averages: 10-period 50-period 200-period Close: 174.68 155.72 160.74 Volatility: 47 85 54 Volume: 1,323,217 1,771,349 1,421,054
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
SALESFORCE COM is currently 10.6% above its 200-period moving average and is in an upward trend. Volatility is extremely low when compared to the average volatility over the last 10 periods. There is a good possibility that there will be an increase in volatility along with sharp price fluctuations in the near future.
Our volume indicators reflect moderate flows of volume into CRM.N (mildly bullish). Our trend forecasting oscillators are currently bullish on CRM.N and have had this outlook for the last 29 periods.
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