Morgan Stanley Incrementally Bullish On Salesforce, Says MuleSoft Deal Underappreciated

Salesforce.com, inc. CRM acquired MuleSoft in early 2018 in a $6.5-billion deal that wasn't fully appreciated by the Street, according to Morgan Stanley.

The Analyst

Morgan Stanley's Keith Weiss maintained an Overweight rating on salesforce with a price target lifted from $153 to $178.

The Thesis

Salesforce's acquisition of MuleSoft addresses the company's challenge of connecting and utilizing data more efficiently from the legacy platform towards saleforce's platform, Weiss said in a research report.

The acquisition is also intended to expand salesforce's value proposition as a broader public and private hybrid cloud environment, the analyst said. The deal comes at a time when digital transformation is a top priority among chief information officers, especially in the areas of customer service, marketing and sales, he said. 

Under salesforce's umbrella, MuleSoft should generate more than $1 billion by 2021 given an estimated market opportunity of more than $25 billion, Weiss said.

On the other hand, MuleSoft is unlikely to report an operating income profit until fiscal 2022, and the acquisition is unlikely to be accretive to salesforce's free cash flow until 2023 and to EPS the following year, the analyst said. 

If salesforce achieves better-than-expected acquisition-related synergies, the stock could move higher by more than 50 percent from current levels to $223 per share, Weiss said. 

Price Action

Shares of salesforce were trading 1.1 percent higher to $146.05 at the time of publication Tuesday. 

Related Links:

Wall Street Reacts To Salesforce's $6.5-Billion Mulesoft Acquisition

Bernstein's Bearish Stance On Salesforce No Longer Applies

Photo courtesy of salesforce.