Salesforce Bull Case Into Earnings

Brean Capital expects an at least in-line result from salesforce.com, inc. (NYSE: CRM) when it reports its third-quarter numbers on November 17, driven by strong enterprise demand and increasing traction with large global system integrators.

Quarter Expectations

The Street expects EPS of $0.21 on revenue of $2.12 billion for the third quarter. Brean sees EPS of $0.20 on revenue of $2.118 billion.

Buoyed by large deals, the brokerage expects 24 percent revenue growth and 12 percent billings growth. Further, Brean projects acquisitions to represent about 4 percent of revenue growth for the quarter.

“Our checks indicate that SFDC (salesforce) is beginning to replace SAP SE (ADR) (NYSE: SAP) and Oracle Corporation (NYSE: ORCL) as the de facto standard status in enterprise business applications, which is reflected in large global system integrators aggressively building out their SFDC practices,” analyst Yun Kim wrote in a note.

Kim’s checks also found higher spending toward salesforce’s core businesses including front-office and customer-facing verticals.

Forward Focus

Looking ahead, Kim expects at least in-line fourth-quarter guidance and at least in-line FY 2018 revenue forecast from the company. Street estimate calls for EPS of $0.25, 24 percent revenue growth at $2.24 billion, 21 percent billings growth for the fourth quarter. Wall Street anticipates 21 percent revenue growth for FY 2018.

While being positive on the company’s M&A strategy, the analyst acknowledged cautious investor sentiment could limit valuation multiples to expand in the near term.

“In our view, acquisitions serve as a key strategic growth driver for the company as it begins to benefit from its emerging status as the de facto enterprise standard,” Kim added.

Kim has a Buy rating and $110 price target on the stock, which closed Monday’s trading at $72.76.