The shares of Salesforce.com (CRM) are falling after the company reported higher than expected second quarter profit and revenue, but announced billings that came in below the consensus outlook. A number of analysts, however, have defended the stock, calling the post-earnings pullback a buying opportunity for long-term investors.
RESULTS: Salesforce reported Q2 earnings per share of 24c, excluding some items, versus the consensus outlook of 22c. The company's revenue came in slightly above expectations. However, the company's billings increased 15% versus the same period a year earlier, while analysts on average had expected its billings to grow 25%. Moreover, Salesforce provided Q3 EPS guidance, excluding some items, of 20c-21c, versus the consensus outlook of 24c.
ANALYSTS STILL UPBEAT: Among analysts who have updated within the last twelve months, 93.6% of them, or 44 out of 47, have a Buy or equivalent rating on Salesforce shares, according to Bloomberg data. Salesforce blamed delays in the closing of a number of its large U.S. deals for its billings miss and its billings growth came in at its lowest level since fiscal 2010, according to RBC Capital analyst Ross MacMillan. However, the company's business outside of the U.S. appears to be strong, and its cash flow from operations should still exceed 20% this year, the analyst stated. He cut his price target on the stock to $85 from $91 but kept an Outperform rating on the shares. Salesforce's "fundamentals remain strong," as negative foreign exchange fluctuations hurt its results, and the shares should be bought on weakness, wrote Brean Capital analyst Yun Kim. Checks indicate that Salesforce is starting "to replace SAP (SAP) and Oracle (ORCL) as the de facto standard status in enterprise business applications," the analyst stated. He thinks that the company is poised to deliver strong growth going forward and kept a $110 price target and Outperform rating on the stock. The negative reaction to Salesforce's results was "a bit" overdone, according to Canaccord's Richard Davis. Those who fear that the company's growth has permanently dropped to around 15% are "extreme," Davis believes. Saying that there are "far to many data points" which indicate that Salesforce will reach $20B in revenue and 25%-30% margins in 2021, Davis advised investors to be "greedy" and buy the stock today. He kept a $95 price target on the shares.
JEFFERIES MORE CAUTIOUS: Salesforce did not provide "clear reasons" for the delays of its deals, wrote Jefferies analyst John DiFucci. Among the possible causes are macro weakness, price increases by the company, saturation of its core sales automation market, and competition, he wrote. Salesforce's lack of "proper integration" of companies it acquired and outages of its software may also have played a role, DiFucci believes. The impact of its outages will probably be transitory, he added. The analyst kept an $80 price target and Hold rating on the shares.
PRICE ACTION: In morning trading, Salesforce fell 6.4% to $74.33 per share.
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