Cloud-based software company Salesforce (CRM) is set to release second-quarter fiscal 2022 earnings on August 25.
Salesforce is the world’s largest Customer Relationship Management (CRM) company.
A strong set of numbers in fiscal Q2 might propel the stock price upward, so let’s take a closer look at what analysts on the Street are expecting. This writer is bullish on the stock.
Street Fiscal Q2 Expectations
For fiscal Q2, the Street expects Salesforce to report adjusted EPS of $0.91 and revenues of $6.24 billion.
Meanwhile, the Earnings Whisper number, or the Street’s unofficial view on earnings, stands at a loss of $1.09 per share. (See Salesforce Dividend Date and History on TipRanks)
Salesforce’s Q1 Snapshot & Q2 Guidance
In May this year, Salesforce CEO Marc Benioff said, “We had the best first quarter in our company’s history.”
This remark by the CEO says it all.
Salesforce reported remarkable Q1 results, with both earnings and revenue increased from the year-ago quarter, owing to strong business growth.
Non-GAAP diluted earnings came in at $1.21 per share, jumping 72.9% year-over-year and topping analysts’ estimates of $0.88 per share.
Meanwhile, the company reported revenues of $5.96 billion, which increased 23% year-over-year and came in ahead of the consensus estimate of $5.89 billion.
For Q2, management expects earnings per share to come in the range of $0.91 and $0.92 and revenues of $6.22-$6.23 billion.
What to Watch for in Salesforce’s Earnings
Salesforce has been growing at a rapid pace, owing in large part to the digital transformation megatrend.
Most enterprises are rapidly moving their operations to the cloud in order to better service home-based workforces.
Salesforce’s cloud-based technologies and diversified cloud services are assisting these companies in making a smooth transition to the cloud. Customer 360 platform, the company’s flagship product, is an artificial intelligence (AI)-powered CRM platform that helps businesses in conducting business in the most efficient manner possible.
As a result, continued digital adoption by its enterprise customers is assisting the company in expanding its client base, which is supporting top-line growth.
Investors should also look into Salesforce’s current remaining performance obligations (CRPO) growth to get a better sense of the company’s performance.
Currently, the company has a CRPO of $17.8 billion, up 23% year-over-year. To simplify, RPO refers to all future contractual income that will be recorded as revenue in the coming year.
The company anticipates a 20% increase in CRPO in the second quarter.
Furthermore, investors should be aware that Salesforce is working on improving its expense management, and as a result, the firm intends to achieve higher profit margins in the next quarters.
For fiscal 2022, the company expects its operating margin to be 18%.
Another crucial point is that investors will be expecting Salesforce to shed more insight on the Slack Technologies integration process. The $28 billion Slack deal, which was completed in July, will help CRM to better compete against companies like Microsoft (MSFT) and others.
Wall Street’s Take
Salesforce stock commands a Strong Buy consensus rating, based on 23 Buys and 5 Holds. The average Salesforce price target of $280.78 implies 7.8% upside potential to current levels.
Ahead of the Q2 earnings release, Jefferies analyst Brent Thill reiterated a Buy rating on the stock with a price target of $300 (15.2% upside potential).
Thill said that the research indicated ongoing strong fundamental demand for Salesforce services.
Bottom Line
Salesforce is clearly overvalued in terms of forward earnings, with a P/E ratio of 53.7. At the time of writing, the stock is trading at $260.52 per share.
Nevertheless, CRM shares have climbed 17% in the past three months, which is included in a massive 255.5% increase over the last five years. Further, its ability to continue to expand in a software-dominated economic world is intriguing to many analysts and investors.
Moreover, the stock’s TipRanks SmartScore, which comprises 8 unique data sets, indicates that the stock has strong potential to outperform market expectations.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
