Salesforce's M&A Earns Cloud Company A Spot On Wedbush's 'Best Ideas List'

The cloud platform salesforce.com, inc. CRM bought MuleSoft in 2018 for $6.5 billion, and the deal is a primary reason why Wedbush has named the stock as one of its best ideas.  

The Analyst

Wedbush's Steve Koenig maintains an Outperform rating on Salesforce with an unchanged $166 price target.

The Thesis

Wedbush's firsthand checks and conversations paint a favorable picture of Salesforce's acquisition of MuleSoft, Koenig said in a Monday note.

Cloud sales executives from major enterprises see Mule as offering Salesforce a "highly complementary sales motion" through next-generation integration technology that is vital to IT's ongoing digital transformation, the analyst said. 

MuleSoft also gives Salesforce the potential for more beat-and-raise quarterly earnings reports, Koenig said, adding that he views estimates calling for 35-percent bookings growth and 45-percent revenue growth at MuleSoft as reasonable.

Looking forward to fiscal 2020, the company could add $600 to $700 million in revenue, which represents three additional points of growth on top of fiscal 2019 estimates, he said. 

After falling around 17 percent since the end of September, Salesforce's stock looks "attractive" as it trades at 6.2 times EF/forward revenue and 33 times EV/FCF, Koening said. Both of these multiples are a discount to peers that boast similar growth rates, which adds a "degree of downside protection," he said. 

Price Action

Salesforce shares were trading up 3.12 percent at $142.26 at the time of publication Monday. 

Related Links:

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

The Street's Reaction To Salesforce's Big Q3 Beat

Photo courtesy of Salesforce.