Morgan Stanley Projects A Strong Q4 At Salesforce

Cloud computing name salesforce.com, inc. CRM is likely to report strong fourth-quarter results with sustained demand trickling into its fiscal 2019, according to Morgan Stanley. 

The company is scheduled to report after the market close Feb. 28.

The Analyst

Analyst Keith Weiss reiterated an Overweight on Salesforce.com shares with a $134 price target, representing about 23-percent upside from current levels.

The Thesis

Data points highlighted by Salesforce.com's partners suggest the company is well-positioned to sustain 20-percent-plus billings growth in the fourth quarter and into 2019, Weiss said in a Thursday note. Salesforce may be operating in a more muted competitive environment relative to last year, the analyst said.

Marketing cloud is Salesforce's most notable positive, given the traction the segment gained due to recent product improvements and better integration with sales and service, Weiss said. 

The segment's organic revenue growth accelerated from a low-20 percent trough in the fourth quarter of 2017 to 36 percent in the second quarter of 2018 and 40 percent in the third, the analyst said. The core sales cloud segment was also gaining traction, thanks to a strong focus on strategic verticals and integration of CPQ functionality, he said. 

"Proving out the viability of management's $22-billion fiscal 2022 revenue goal (and the associated 20-percent topline CAGR) could be the X-factor in moving shares higher," Morgan Stanley said. The firm projects a 35-percent operating margin as revenue growth slows to 10 percent.

Salesforce's Q4 billings guidance midpoint of 16-percent year-over-year growth is conservative, and Morgan Stanley is modeling for 17 percent growth, slightly below the consensus estimate of 17.6 percent, Weiss said. 

The Price Action

Salesforce.com shares are up about 38 percent over the past year.

The stock was up 2.89 percent at $112.20 in Thursday morning trading. 

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Photo courtesy of Salesforce.