Morgan Stanley Still Likes Salesforce

Salesforce.com, inc. CRM reported Wednesday its second-quarter results, which shows the company is able to sustain an "unprecedented growth" rate but at the same time it's becoming harder for management to keep up with lofty investor expectations, according to Morgan Stanley.

The Analyst

Morgan Stanley's Keith Weiss maintains an Overweight rating on salesforce with an unchanged $178 price target.

The Thesis

Salesforce again showed an organic constant currency billings growth of at least 20 percent year-over-year and the company is on track to hit the high-end of its $22-$23 billion fiscal 2022 revenue targets, Weiss said in a note.

The earnings also showed a better-than-expected margin expansion in the quarter of 170 basis points despite incremental costs from the MuleSoft acquisition closing in the quarter. The better-than-expected margin performance also confirms the strong underlying unit economics of the platform and management's ability to integrate large scale M&A deals.

Salesforce lifted its full fiscal year 2019 revenue guidance to $13.125-$13.175 billion, which implies a $50 million organic increase at the midpoint of the range. Weiss said the revision implies an outlook that would be inline with the second quarter beat despite expectations for an incremental $75-$100 million foreign exchange headwind for the rest of the year.

Bottom line, salesforce remains one of the best secular stories within the entire software space and boasts better exposure to industry-wide favorable trends, including demand for mobile, social and cloud.

Price Action

Shares of salesforce were trading lower by 2 percent at $151.51 early Thursday morning.

Related Links:

Analysts Back Up Positive Market Reaction To Salesforce's Q1 Earnings

Morgan Stanley Incrementally Bullish On Salesforce, Says MuleSoft Deal Underappreciated