Salesforce (NYSE:CRM) saw a 5% increase on Thursday after its robust earnings report indicated that cost-cutting efforts were effective and demand was holding up better than expected in a tumultuous economy.
The business software company behind workplace messaging tool Slack and data analytics platform Tableau is set to add around $10 billion to its market value, based on its pre-market stock price of $227. The shares have already surged over 60% so far this year.
On Wednesday, Salesforce raised its annual projection for adjusted operating margin to about 30%, up from the previous 28%, with CFO Amy Weaver emphasizing that the new number is “a floor, not a ceiling.”
Wall Street analysts praised this move, highlighting the benefits of an aggressive push for profitability in a company that traditionally focused on growth through acquisitions.
After facing criticism from activist investors earlier in the year, the Marc Benioff-led company undertook mass layoffs, downsized office space, and reduced employee benefits this year to drive profitability, which had lagged behind competitors for years.
“The ceiling is the roof” for margins, stated analysts at Raymond James. The brokerage was among the 20 that raised their price targets for the stock, raising the average target to $253 according to Refinitiv data. That’s nearly 18% higher than the stock’s last closing price.
Wednesday’s report also eased concerns about the company’s growth slowdown.
While the 11% rise in second-quarter revenues was significantly slower than the historical growth rates of around 20% to 30%, it surpassed Wall Street’s expectations. Salesforce also raised its annual revenue forecast.
To counter the tech spending recession, the company introduced an array of artificial intelligence features and implemented its first price hike in seven years.
The report is expected to boost investor confidence in the company, according to brokerage Raymond James, which added that the “shares are simply underpriced” for a company that’s performing well in a challenging economic environment.
Salesforce is currently trading at 25 times its estimates for future 12-month earnings, compared to the sector median of 15.14.
Investment Recommendation
JP Morgan is bullish on Salesforce shares with a Buy rating. The price target was raised from $230 to $240.