Ignore The Bears, Buy Salesforce Shares: Wunderlich

Following the strong close to F20Y17 posted by salesforce.com, inc. CRM, Wunderlich’s Ryan MacDonald reiterated a Buy rating on the company, with a price target of $101.

Salesforce reported its revenue and EPS for Q4 ahead of the consensus forecasts, with the core sales cloud business seeing a reacceleration, along with strength in the marketing cloud, which was driven by commerce cloud wins and vertical cloud strength in the healthcare and financial services.

“While bears may try to poke holes in the quarter due to the below-consensus 1Q18 guidance, we argue that management signaled a steeper sequential seasonality between 4Q and 1Q at Dreamforce and encourage investors to focus on the increased FY18 outlook despite an expected 125-150bps FX headwind to revenue,” the analyst stated.

Related Article: Salesforce Still Best Positioned At The Top Of The Cloud

Continuing Strength

For Q4, Salesforce reported revenue of $2.29 billion, with EPS of $0.28, despite FX headwinds of $30 million to revenue.

The company attributed about 2.5 percent of its 27 percent growth for FY2017 to M&A.

Operating margins for the quarter came in at 12.9 percent, again beating consensus and reflecting an 80 bps year on year increase, while deferred revenue grew 29 percent year on year to $5.54 billion, also ahead of the consensus expectations.

Both unbilled deferred revenue and billings grew year on year, beating expectations, while cash from operations stood at $706.1 million. Salesforce.com ended Q4 with cash worth $2.21 billion.

Guidance

The company guided to Q1 2018 revenue of $2.34-$2.35 billion, which was below the consensus, along with the EPS guidance of $0.25-$0.26 also missing the consensus forecast.

Salesforce.com expects deferred revenue growth of 22-23 percent during Q1.

“CRM raised FY18 revenue guidance to a range of $10.15B-$10.2B from $10.1B-$10.15B. EPS guidance was set to $1.27-$1.29, in line with consensus of $1.28,” MacDonald mentioned.

The company continued to deliver large deal strength through FY17, with 100 customers over $10 million, while doubling the number of customers over $20 million. Salesforce.com also witnessed strength in its international operations.