On Wednesday, an analyst from Scotiabank (TSX:BNS) increased the price target on salesforce.com (NYSE:CRM) to $440.00, up from the previous $425.00, while retaining a Sector Outperform rating for the company. The adjustment follows salesforce.com's reported growth in current remaining performance obligations (cRPO), which measures future revenue under contract, exceeding expectations for the second fiscal quarter (F2Q) and providing a robust forecast for the fourth fiscal quarter (F4Q).
According to InvestingPro data, Salesforce maintains a perfect Piotroski Score of 9, indicating exceptional financial strength, with the stock currently trading near its 52-week high of $348.86.
Salesforce.com (NYSE:CRM)'s shares surged by approximately 10% in after-hours trading as a result of the company's recent performance and positive outlook. The analyst noted that the company's subscription revenue is expected to stabilize at around 9%, with cRPO growth projected at approximately 10%.
This optimistic view is further bolstered by the potential of the company's newly introduced Agentforce platform, which the analyst believes could contribute to a 10% growth in subscription revenue next year. InvestingPro data shows the company's impressive gross profit margin of 76.35% and consistent revenue growth of 10.26% over the last twelve months.
The company's recent successes include closing over 2,000 artificial intelligence deals, with more than 200 for Agentforce in its first week alone. To address the rising demand, salesforce.com plans to expand its workforce by hiring 1,400 account executives in the F4Q. Additionally, the company is enhancing its sales capabilities with tools like SDR Agent and Sales Coach (NYSE:TPR) Agent.
Improvements are not limited to revenue growth, as salesforce.com also reported significant gains in profitability. The company achieved a 20% GAAP operating margin and provided guidance for a non-GAAP operating margin of approximately 32.9% for F4Q, indicating another quarter of more than 50% incremental margins.
The analyst highlighted the potential for salesforce.com's agents to gain increased autonomy with enhanced reasoning and interoperability capabilities, which are expected to be showcased during the Agentforce 2.0 demonstration on December 17, 2024. Despite the after-hours trading price, the analyst suggests that the current valuation of salesforce.com at approximately 22 times the calendar year 2026 estimated enterprise value to free cash flow (EV/FCF) does not fully account for the opportunities that Agentforce presents.
The raised price target to $440 is based on a 27 times multiplier of the estimated EV/FCF for the calendar year 2026. According to InvestingPro analysis, Salesforce currently appears slightly undervalued, with 14 additional ProTips available to subscribers, including detailed insights on the company's valuation metrics and growth potential.
In other recent news, Salesforce has seen a series of positive developments following its latest quarterly results. Truist Securities raised its price target for Salesforce to $400, highlighting the company's strong third-quarter performance. The firm's analysis underlined the company's significant growth across various metrics, including a revenue growth of 10.26%.
Salesforce's new offerings, such as Agentforce and Data Cloud, have been well-received, with the company securing 200 Agentforce deals in the third quarter alone. These products, along with the company's core cloud services, have demonstrated steady year-over-year growth.
Several other firms have also upgraded their targets for Salesforce. JPMorgan raised its target to $380, Mizuho (NYSE:MFG) Securities to $425, and Oppenheimer to $415, all maintaining positive ratings. These upgrades come after Salesforce reported a slight miss in Q3 earnings per share due to investment losses, but other financial metrics such as current remaining performance obligations (cRPO), margins, and cash flow met or exceeded expectations.
Needham and Canaccord Genuity also raised their price targets for Salesforce to $375 and $415, respectively, emphasizing the company's impressive financial health and gross profit margins of 76.35%. However, Guggenheim maintained a neutral rating, expressing skepticism about the company's growth being primarily driven by early renewals rather than strong new bookings.
Despite these varied perspectives, analysts from Goldman Sachs, Evercore ISI, Raymond (NS:RYMD) James, and Citi expressed confidence in Salesforce's potential to achieve significant free cash flow per share in the coming years, supported by sustained top-line growth.
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