Wunderlich Confident Salesforce.com Issues Are Minor

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Wunderlich has reiterated its Buy rating and $101 price target on salesforce.com, inc. (NYSE: CRM) following the company’s better-than-expected second-quarter results. But, the shares fell 6 percent in Thursday’s pre-market hours as investors fretted over the outlook.

Earnings And Guidance

Salesforce set third quarter revenue guidance at $2.11 billion–$2.12 billion, slightly below consensus of $2.12 billion. EPS was set at $0.20–$0.21, also below consensus of $0.24.

The company guided third quarter below expectations, as its deferred revenues and billings were impacted by an expected FX headwind and some deal slippage due to unexpected softness at quarter end. That said, Wunderlich noted these are minor issues.

Related Link: Salesforce Tumbles After Disappointing Guidance

Analyst Take

“Given we are heading into DreamForce at the beginning of October and CRM’s proven track record of strong execution, we remain confident that any issues are minor. Given CRM’s current discounted valuation, we reiterate our Buy on the SaaS industry leader,” Ryan MacDonald wrote in a note.

Despite tepid third-quarter outlook, Salesforce raised its FY17 revenue guidance to a range of $8.275 billion–$8.325 billion from $8.26 billion–$8.32 billion. EPS guidance was reaffirmed at $0.93–$0.95. Following salesforce’s updated guidance, MacDonald raised his FY17 revenue estimate to $8.298 billion from $8.290 billion, while reiterating FY17 EPS of $0.94.

The analyst said salesforce shares currently trade at a P/S ratio of 6.5x his FY17 revenue estimate, which is a discount to the next-gen SaaS group of 8.0x. The $101 price target assumes the company will trade at 8.2x his FY17 revenue estimate of $8.3 billion, which is a slight premium to the next-gen SaaS software group.

“In our opinion, a premium multiple is justified, given the company’s size, dominance, and ability to expand into adjacent markets and internationally compared with other next-gen software companies,” MacDonald added.

Shares of salesforce closed Wednesday’s trading at $79.42 and were down 6.82 percent to $74 in Thursday’s pre-market.

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