On Wednesday, KeyBanc Capital Markets began its coverage of Salesforce.com (NYSE:CRM) with a Sector Weight stock rating. The firm expressed optimism about the company's near-term financial metrics and acknowledged Salesforce's transition to a new operating model.
Analysts at KeyBanc predict a significant increase in incremental free cash flow margins, estimating an average of 60% from fiscal year 2024 to fiscal year 2027, a stark contrast to the 14.5% average in the four years before fiscal year 2022.
The firm forecasts accelerating revenue growth for Salesforce, propelled by its data cloud services. KeyBanc also anticipates that Salesforce will maintain its share buyback program, spending around $1 billion each quarter, while preserving financial flexibility. Expectations are set for the company's cash flow growth to continue at a double-digit rate into the next decade.
KeyBanc adjusted its discount rate for Salesforce, citing that the company's previously realized beta was considered too high. Despite several positive leanings towards the company's performance, KeyBanc's fair value estimate for Salesforce's stock aligns closely with its current trading price.
The firm suggests that for a more bullish outlook, investors would need to assume sustained high incremental margins, prolonged hypergrowth in the data cloud, a rapid execution of the buyback authorization, and an expansion of the trading multiple.
In their commentary, KeyBanc indicates a cautious stance, choosing to observe how Salesforce's strategies and market performance unfold before adopting a more bullish position. The firm's rating reflects a balanced view of Salesforce's potential growth against the current valuation of its shares.
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