What to Expect From Salesforce Earnings

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Salesforce.com Inc. (NYSE: CRM) is scheduled to release its fiscal second-quarter financial results after the markets close on Wednesday. Although the stock has not kept up with markets in 2016, some analysts believe that this is only the beginning—not that this stock will continue to underperform—but really that this company stands to grow significantly in the coming years.

The consensus estimates are $0.22 in earnings per share (EPS) on $2.02 billion in revenue. The same period from last year reportedly had $0.19 in EPS on revenue of $1.63 billion.

Recently, Merrill Lynch reiterated a Buy rating with a $100 price objective for this stock. Ultimately, the brokerage firm considers Salesforce.com one of its favorite large cap growth ideas for 2016, even though there are only a few months left. Merrill Lynch is also maintaining the path to exponential upside out to 2020. Not to mention that the firm is surprised about how this stock has performed, given that it beat earnings expectations last quarter and is looking to continue with a strong stock market.

For the second half of 2016, Merrill Lynch expects the stock to outperform as Salesforce enters seasonally strong second half and DreamForce in October tends to stimulate new business due to new products.

At the same time, the second quarter has historically posted deferred revenue contributions to the billings number at a very modest rate. Also Merrill Lynch’s billings estimate of $1.85 billion is a bit lower than revenue estimate of $2.02 billion. Small fluctuations in deferred revenue can lead to misleading interpretation. The fourth quarter is the real key where billings have been 70% to 80% higher than revenues, which sets the tone for the following year’s growth rate.

However Merrill Lynch has set its eyes on the prize looking as far out as 2020, where the firm believes that Salesforce shares can rise as high as a range of $224 to $264. Also Merrill Lynch believes revenues could rise to $20 billion at this time, compared to expected revenues of $6.67 billion in 2016.

A few other analysts weighed in on Salesforce prior to the release of the earnings report:

  • Wedbush reiterated an Outperform rating with a $98 price target.
  • Stifel reiterated a Buy rating with a $93 price target.
  • Mizuho reiterated a Buy rating with a $100 price target.
  • BTIG Research reiterated a Buy rating with a $100 price target.
  • Brean Capital reiterated a Buy rating with a $110 price target.
  • Jefferies has a Hold rating with an $80 price target.
  • JMP Securities has a Market Perform rating with a $92 price target.
  • Piper Jaffray reiterated an Overweight rating with a $100 price target.
  • MKM Partners reiterated a Buy rating with a $96 price target.
  • Stephens has an Overweight rating.

So far in 2016, Salesforce has underperformed the broad markets, with the stock down about 2%. Over the past 52 weeks, the stock is actually up 15%.

Shares of Salesforce were trading around $80.00 in early trading indications on Wednesday. The stock has a consensus analyst price target of $96.72 and a 52-week trading range of $52.60 to $84.48.