Analyst Explains Why It Favors Salesforce, Smartsheet Versus Workday, Zoom, DocuSign, Asana

Morgan Stanley analysts Keith Weiss and Josh Baer highlighted that SaaS valuations rebounded in recent months, with the average SaaS stock up 22% over the last three months (though still down ~34% YTD).
The team thinks that companies demonstrate stable execution and highlight only isolated demand impacts, emphasizing margins and focusing on efficiency (protect FCF).
At the same time, de-risking forward guidance stands the best chance for outperformance in Q2 results.
With this backdrop in mind, the team favors the risk/reward at Salesforce, Inc CRM (OverWeight, $273 price target), with low investor growth expectations and little appreciation for the margin improvement story, and an underappreciated valuation.
On the positive side, the team also likes Smartsheet Inc SMAR (OverWeight, $68 price target) at a ~50% discount to SaaS peers signifying a significant discount for a company inflecting FCF to positive this year, already embedding macro prudence in FY23 guidance.
Tactically, the team sees a more challenging setup for Workday, Inc WDAY (OverWeight, $282 price target), which is a likely candidate for longer-sales cycles / slipped deals and still needs to de-risk H2.
The team acknowledged Zoom Video Communications, Inc ZM (OverWeight, $140 price target) with conservative margins overshadowed by topline concerns.
The team also mentioned DocuSign, Inc DOCU (EqualWeight, $73 price target), which lacks visibility into growth, and Asana, Inc ASAN (EqualWeight, $35 price target), which is operating at a negative 'Rule of 40'.
Price Action: CRM shares traded lower by 0.63% at $189.82 on the last check Tuesday.

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