A Look At Expectations And Sentiment For Salesforce Ahead Of Earnings

With salesforce.com, inc. (NYSE: CRM) scheduled to report its fourth-quarter 2017 results after the close Wednesday, Wunderlich’s Ryan MacDonald noted that industry checks and sentiment on the stock have generally been positive ahead of the print.

The analyst maintains a Buy rating on the company, with a price target of $101.

Expectations And Outlook

MacDonald expects salesforce.com to beat the consensus billings, revenue and EPS expectations for Q4 2017, driven by robust large deal activity from multi-cloud adoptions and international strength.

“While we expect management to remain conservative with FY 2018 guidance expectations, we believe that any upside to expectations for operating margin expansion would act as a catalyst to drive the stock higher,” the analyst stated.

The analyst expects investor focus heading into salesforce.com’s FY 2018 to be on the balance of stability within the core business segments, as well as growth of new initiatives, such as commerce cloud (Demandware), collaboration (Quip) and artificial intelligence (Einstein).

In addition, while the company is expected to witness increased competition in its core markets through the year, MacDonald expects any impact from this to be back-half weighted.

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Investor Sentiment

Following the robust Q3 2017 results reported by salesforce.com in November, where the revenue and EPS beat the consensus, while the guidance was also ahead of consensus, the stock rose 3 percent in the following trading session.

Although the shares witnessed a marginal decline towards the end of 2016, the stock has rallied in early 2017, with a return of 9.2 percent since the Q3 2017 results report.

“Compared to the 8.4 percent return of the iShares North American Tech-Software ETF (IGV) over the same timeframe, shares of CRM have relatively outperformed,” the analyst pointed out.

In fact, MacDonald believes that a higher multiple is justified, “given the company's size, dominance, and ability to expand into adjacent markets and internationally compared with other next-gen software companies.”

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