Salesforce Inc (CRM)

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2024 is the year to own Salesforce (CRM), says Wolfe Research
By: Investing | December 18, 2023

Wolfe Research upgraded Salesforce (NYSE:CRM) stock to Outperform from Peer Perform with a $315 price target on Monday. The firm believes that 2024 is the year to own Salesforce, citing several reasons for its optimism.

"Last year we downgraded CRM to PP after F3Q23 earnings given the combination of growth deceleration, management disruption, lack of commitment to margin leverage and incremental execution risk from M&A mis-adventures," analysts wrote in the note. "Fast forward 365 days (and a few good activists), and we think CY24 is the year to own this value growth stock."

The analysts' core thesis is that Salesforce's growth has bottomed and should stay in the double digits for the foreseeable future, driven by pricing increases, product cycles, and artificial intelligence (AI). They also believe that Salesforce is committed to margin leverage and that its leadership team is stable.

Despite mixed field checks, the company's third quarter showed that Salesforce is back to executing, with Cloud Commerce (CC) cRPO growth accelerating to 13% and non-GAAP operating margins expanding from 23% to 31%.

Wolfe Research is also bullish on Salesforce's prospects from its GenAI-driven product cycle, which includes Data Cloud and Einstein GPT. The investment firm said its checks suggest Data Cloud is in nearly all conversations and that it was part of six of the top ten deals in the most recent quarter.

Additionally, Salesforce added 1,000 new Data Cloud customers and 17% of the Fortune 100 are now Einstein GPT Copilot customers, Wolfe Research noted.

Analysts also see double-digit upside to consensus free cash flow (FCF) estimates over the next two years. They also stated that "30% operating margins are cool, but getting to 40% over the next few years would be iconic."

"The company's shift to profitability has caused shares to re-rate, and we continue to see upside to FCF and EPS targets all while CRM is entering a product cycle around GenAI," said Wolfe Research. "We believe adoption of new products and sustained pricing power can drive double-digit top-line growth in 2024, all while margins continue to inflect as the risk or large scale dilutive M&A appears to be dissipating."

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