Salesforce Q3 Earnings Preview: Buy Surging CRM Stock Right Now?
Zacks Investment Research | Nov 22, 2019 07:34AM ET
Salesforce (NYSE:CRM) shares have surged 15% in the last month to crush its industry’s 7.5% expansion. The cloud-based customer relationship management powerhouse posted stronger-than-projected Q2 results back in August and raised its full-year sales outlook.
The enterprise software firm has benefitted from the continued digitalization of businesses big and small. Salesforce, under the leadership of CEO Marc Benioff, has also expanded its reach through acquisitions. So is now the time to buy CRM stock ahead of its Q3 earnings release that is due out on December 3?
Salesforce’s Pitch
Salesforce is the world’s fifth-largest enterprise-application-software firm by revenue, according to research firm Gartner Inc. The company’s cloud-based customer relationship management services provide clients a wide range of tools and applications to help them run everything from sales and e-commerce to marketing and analytics.
The San Francisco-based firm’s clients include everyone from Activision Blizzard (NASDAQ:ATVI) to Yeti (NYSE:YETI) , and it has expanded its partnership with Amazon Web Services (NASDAQ:AMZN) . CRM has also bolstered its offerings through artificial intelligence, new voice-control features, and more.
Salesforce also completed its purchase of data-analytics platform Tableau in August. The company boasted that its $15 billion deal—its largest acquisition—joined together the “World's #1 CRM and #1 analytics platform.” The firm then announced a much smaller deal to buy ClickSoftware Technologies Ltd.
Other Fundamentals
CRM is part of our Computer – Software industry, which currently rests in the top 25% of our more than 250 Zacks industries. Salesforce stock closed regular trading hours Thursday at $162.88 per share, just off its new highs.
Overall, CRM shares are up 31% in the last year, which includes a decent amount of volatility. CRM stock is also up 115% in the last three years to crush its industry’s 46% average climb, which includes Adobe (NASDAQ:ADBE) , Oracle (NYSE:ORCL) , VMware (NYSE:VMW) , Intuit (NASDAQ:INTU) , and others.
Salesforce, which is still very much in its growth phase, does not pay a dividend. The company is also trading at a pretty high forward earnings multiple. With that said, CRM’s forward price/sales ratio comes in at 7.2. This is above its industry, but sits below its five-year high of 8.2X, despite the fact that its stock price has surged.
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Q3 Outlook & Beyond
Last quarter, Salesforce’s revenue jumped 22% to $3.99 billion. Looking ahead, the firm’s Q3 revenue is projected to jump 30.7% to reach $4.43 billion, based on our current Zacks Consensus Estimates. The firm’s full-year fiscal 2020 sales are then expected to climb nearly 27% to $16.85 billion, with 2021 projected to jump 24% higher to reach $20.92 billion.
Investors should be pleased to note that these estimates would see Salesforce continue its impressive streak of 24% or higher full-year revenue expansion over much of the last decade. At the bottom end of the income statement, CRM’s adjusted Q3 earnings are projected to pop 6.6% to $0.65 per share.
The tech company’s full-year fiscal 2020 EPS figure is expected to climb 3.6%, with 2021 projected to come in 8.4% higher. CRM has also seen its earnings estimate revision picture turn slightly more positive recently.
Bottom Line
Salesforce is a Zacks Rank #3 (Hold) at the moment that sports an “A” grade for Momentum in our Style Scores system. Overall, the third-quarter has been better-than-expected for tech companies, so some investors might want to take a chance on CRM stock before its early December release in the hopes of a nice pop.
However, buying a stock heading into earnings is never easy, as no one knows what Salesforce’s actual numbers and guidance will be, much less how Wall Street will react.
In the end, though, CRM appears to be a solid longer-term buy as businesses, governments, and every other entity in between continue their digital transformations. Salesforce is also prepared to expand its international reach.
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