Morgan Stanley: What To Like In Salesforce's Q1

salesforce.com, inc. CRM reported first-quarter results Tuesday that show a strong start to fiscal 2019, while multiple encouraging data points beyond the headline numbers reinforce the bullish case for the stock, according to Morgan Stanley.

The Analyst

Morgan Stanley's Keith Weiss maintains an Overweight rating on Salesforce's stock with a price target lifted from $140 to $153.

The Thesis

Salesforce's earnings report should give investors confidence in the cloud computing company's goals of dominating an estimated $120-billion market opportunity, Weiss said in a Wednesday note. Here are some of Weiss' takeaways: 

• Billings growth of 16.5 percent exceeded the analyst's estimate of 10.5 percent, and Salesforce's second-quarter billings guidance implies 25-percent organic growth at the midpoint.
• The quarter was a "fully organic" one with a 370-basis point operating margin improvement.
• Salesforce's fiscal 2019 revenue revision implies a $100-million organic increase to the midpoint.

Several data points from Salesforce's report deserve attention from investors, Weiss said: 

• The company's downward revision in annual cash from operations growth from 20-21 percent to 14-15 percent.
• Despite a margin improvement in the first quarter, only "limited" incremental improvements are likely moving forward.
• MuleSoft's $75-$100 million benefit to unearned revenue in the second quarter is an "upfront" benefit.

Price Action

Salesforce shares were up more than 3 percent after the open Wednesday.

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Photo courtesy of Salesforce.