Salesforce Gains A Bull On The Strength Of Its Growth Story

salesforce.com, inc. CRM continues to be one of the more hotly debated stocks among investors. Bulls would argue the company has significant runway ahead given its large addressable market. Bears argue the stock's 730-percent return over the past 10 years already factors in future growth opportunities.

The Analyst

UBS' Jennifer Swanson Lowe.

The Rating

Swanson Lowe initiated coverage of Salesforce's stock with a Buy rating and $135 price target. (See Swanson Lowe's track record here.)

The Thesis

Salesforce continues to "execute successfully" within its massive $105 billion total addressable market, Swanson Lowe said in the Wednesday initiation note. While the company is showing signs of slower growth over the past few quarters, there is at least $24 billion worth of opportunity to convert on-premise CRM software to the cloud, the UBS analyst said. Salesforce is also expected to grow its margins by 200 basis points per year, which represents upside to the Street's estimate of just 150 basis points a year.

There's room for a "significant" revenue ramp ahead, especially when considering that Salesforce's vertical markets are three times the size of horizontal apps, Swanson Lowe said. In addition, Digital Transformation projects are another sizable opportunity, as just 1 percent of capex among the 10,000 largest global companies represents a potential $35 billion market, according to UBS. 

Finally, Salesforce's stock is trading at just 5.9x EV/CY18E sales, a discount versus the 8.8x multiple implied by the analyst's regression analysis. A $135 price target implies the stock's valuation gap narrows to just 8.0x EV/CY18E.

Price Action

Shares of Salesforce were trading lower by around 1 percent Thursday morning, but are still higher by more than 50 percent since the start of 2017.

Related Links:

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Photo courtesy of Salesforce.