salesforce.com (CRM) Stock Surges Today as Analysts Up Price Targets After Earnings Report
NEW YORK (TheStreet) -- Shares of salesforce.com (CRM) - Get Report are extending gains this morning on heavy trading volume, surging 11.2% to $69.91 as analysts raised their price targets today after the enterprise cloud computing solutions company reported its results for the fourth quarter of fiscal 2015 that fell in line with analysts' estimates.
salesforce reported earnings of 14 cents a share for the fourth quarter, in line with analysts' estimates. The company reported revenue of $1.44 billion for the quarter, up 25.2% from the year-ago quarter, and also in line with analysts' estimates.
Looking to the first quarter of fiscal 2016, the San Francisco-based company said it expects to report earnings of 13 cents to 14 cents a share and revenue of $1.485 billion to $1.505 billion. Analysts expect earnings of 15 cents and revenue of $1.5 billion for the quarter.
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salesforce expects earnings of 67 cents to 69 cents a share and revenue of $6.475 billion to $6.52 billion for fiscal 2016. Analysts expect earnings of 69 cents a share and revenue of $6.5 billion for the fiscal year.
"salesforce delivered yet another year of exceptional growth, with revenue, deferred revenue and operating cash flow all growing more than 30%, while exceeding our expectations in non-GAAP operating margin improvement," Chairman and CEO Marc Benioff said in a statement. "salesforce reached $5 billion in annual revenue faster than any other enterprise software company and now it's our goal to be the fastest to reach $10 billion."
As the stock continues to gain today, analysts raised their price targets and adjusted estimates.
"In addition to the solid FX-adjusted billings growth rate and guidance, we liked the large deal commentary, 33% growth in more than $10 million deals in 2015," Deutsche Bank said raising its price target to $80 from $70.
"[We also liked] the 27% growth in unbilled backlog to $5.7 billion, the 2016 OCF growth guidance of 21% to 23% even after the strong 2015, the slight uptick to the 2016 revenue growth guidance, the recovery in the pace of hiring, the performance in Europe and the sequential growth of 8.1% for the Service Cloud, higher than any other segment, becoming the real growth engine for the company," Deutsche Bank added.
Credit Suisse increased its price target to $80 from $75 saying "we view salesforce.com as the company in our coverage universe most leveraged to the massive technology refresh and expansion cycle across the multiple CRM segments, as well as the high-growth PaaS market."
BMO Capital Markets raised its target to $80 from $73, concluding that "the combination of addressable market expansion, enterprise penetration, and margin leverage should be positive for the stock."
Similarly, other analysts upped their targets: Pacific Crest to $77 from $74, MKM Partners to $80 from $67, Canaccord Genuity to $80 from $70 and Jefferies to $49 from $47.
Interestingly, on Monday, Jim Cramer penned 'Cramer: What to Watch for in IBM' on RealMoney.com where he not only called the guidance for salesforce.com, "the ultimate cloud company," in his view, saying it "will soon do $6 billion in cloud revenues, up $1 billion from last year's totals," but he gave some insight into what to watch for in International Business Machines Corp. (IBM) - Get Report as it works to become the "cloud leader."
Here is a snippet of what Cramer had to say leading up to IBM's analyst meeting today:
...IBM will have already done $7 billion worth of cloud business in the time it took salesforce.com to get to $5 billion. At $7 billion, up an astounding 60% year over year, you can understand why IBM regards itself as the cloud leader. Not only that, but $25 billion of IBM's revenues come from cloud, analytics, mobile, social and security -- literally every single hot area of technology. That "strategic imperatives" business, as the company calls it, is growing very quickly, at a pace of 16%, and that includes currency.
That's nothing short of remarkable.
So then why is the stock performing so poorly, standing at $163, 36 points from its high and unchanged from April of 2011, when the S&P 500 is up some 60% since then?
The answer lies in the other 75% of the business, the traditional hardware and software business that is in such severe decline that 25% that is good simply isn't good enough, as the revenues here are pretty much flat for the last decade.
Now, that doesn't mean IBM doesn't generate a lot of cash, including from divestitures that has kept down revenues despite ample acquisitions. We certainly want to hear that IBM is on target to earn $15.75 to $16.50, the target laid out on its earnings call a month ago. IBM has bought back an astounding 58% of its stock since 1995 at an average price of $100 a share, certainly helping the stock to go from the mid-$20s to $163 now.
The problem isn't with the buyback, which we know Warren Buffett loves, hence the announcement of further increase of 6.49 million shares bringing his position to 76.97 million shares, more than 20 million shares more than the next holder, which is an index fund.
The problem is with the 75% of the company that is either not growing or you could argue is in secular decline, or at least is being cannibalized by the new portion of the business, even as the cannibalization isn't all that tragic as the strategic imperatives business carries higher gross margins on average than the rest of the business.
So, what we really need to hear is that IBM is going to make large-scale, not tuck-in acquisitions to the strategic imperatives businesses to accelerate their growth, while simultaneously shutting or selling some legacy business to take the fast-growing portion to north of 50%. If that can happen, if the narrative can change -- something that can only happen by a shift in revenues to cloud, mobile, social -- this stock will get a much higher multiple on a $16 number.
If not? Then I think the stock does little, which, interestingly enough, is actually a pretty good risk reward.
-Jim Cramer, 'Cramer: What to Watch for in IBM' originally published 2/23/2015 on RealMoney.com.
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