Salesforce Slips as Results Overshadowed by Weak Forecast

(Bloomberg) -- Salesforce.com shares fell on Wednesday after it reported third-quarter results that beat expectations but gave an outlook that analysts saw as tepid.

The company's forecast for current remaining performance obligations (cRPO) was particularly in view, with Barclays speculating that it would “create some anxiety” despite a number of other positives in the report. Analysts were broadly positive on the results, with many writing that the outlook reflected conservatism on the part of the company. Multiple firms raised their price targets on the stock.

The shares fell about 2.7%, though they remain up about 10.6% from an October low.

Here's what analysts are saying about the results:

Barclays, Raimo Lenschow

The results “will be welcome by the bulls, and is evidence of both the underlying momentum and healthy cross-sell with acquired products.” However, the fourth-quarter outlook for current remaining performance obligations “will create some anxiety.” That outlook may reflect conservatism, but it is “uncharted territory for the company in guiding cRPO first time for the seasonally biggest quarter.”

Despite the “noise” from the outlook,” Salesforce should continue to deliver upside and it still has a strong long-term opportunity.

Overweight rating, $189 price target.

Morgan Stanley, Keith Weiss

“Accelerating growth in recent acquisitions and solid demand indicators” point to “durable” free-cash-flow growth of more than 25%. This growth is “not reflected” in the company's valuation.

The firm also has confidence in Salesforce's ability to sustain subscription growth of 20% through its 2024 fiscal year, thanks to “strong execution against recent acquisitions combined with deepening (more strategic) relationships.”

While the fourth-quarter outlook “may stoke investor concerns on the durability of growth at Salesforce, we'd look at any weakness as a buying opportunity.”

Overweight rating, price target raised to $197 from $180.

RBC Capital Markets, Alex Zukin

The results featured “sizable beats across revenue, cRPO, and margins.”

Salesforce “is benefiting from healthy end-market demand across its portfolio,” and it should have durable, multi-year growth above 20%.

Outperform, $200 price target.

Jefferies, Brent Thill

The results were strong “across the board,” and “the stage is set for a strong finish” to the year.

Margins continue to be an overhang, especially given recent acquisitions, but “the stock will work if CRM takes a breather and digests $17B in deals completed” this fiscal year. The current valuation is favorable.

Buy rating, $195 price target.

Cowen, J. Derrick Wood

The outlook was a little below expectations, but “we think these estimates are conservative” given the upside in the quarter. Despite this issue, “positive commentary on the macro, on pipelines and on the reception of the DATA acquisition leads us to believe there should be room for meaningful upside.”

Outperform, $195 price target.

What Bloomberg Intelligence Says:

Recent acquisitions “should help boost the company's reported growth over the next 12 months,” although “M&A activity may affect the full year's adjusted operating margin.”

- Analyst Anurag Rana

- Click here for the research

To contact the reporter on this story: Ryan Vlastelica in New York at rvlastelica1@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Steven Fromm

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