Bernstein's Bearish Stance On Salesforce No Longer Applies

Bernstein's bearish case against salesforce.com, inc. CRM no longer applies as the company "created a path" to achieve the necessary growth rate.

The Analyst

Bernstein's Mark Moerdler upgraded Salesforce from Underperform to Market Perform with a price target lifted from $102 to $125.

The Thesis

The case against Salesforce's stock was based on the premise the company won't be able to organically generate a revenue growth rate north of 20 percent, Moerdler said in the note. But this is no longer the case, as the company's fourth-quarter earnings report was "very strong" from a bookings perspective as deferred revenue grew 25 percent and total backlog rose 40 percent. The company is seeing an increase in sales momentum due to its strong platform offering and a healthy spending environment.

Salesforce's acquisition of MuleSoft will also contribute both inorganic and organic sales growth in fiscal 2019 and fiscal 2020, which would help the company achieve the analyst's 20 percent revenue growth requirement through at least 2020.

Moerdler said Salesforce's ability to generate an operating margin north of 30 percent in the long-term or 300 to 400 basis points of margin improvement per year remains a concern. Nevertheless, the company's ability to generate a revenue growth rate of more than 20 percent makes it "unlikely investors will exit the stock en-mass or increase their focus on margin expansion."