Source: Investing Published 09/24/2024, 11:39
On Tuesday, Piper Sandler expressed a positive outlook on Salesforce.com, Inc. (NYSE:CRM), upgrading the stock from Neutral to Overweight and increasing its price target to $325 from $268 previously. The firm’s decision is based on the expectation of a significant increase in Salesforce’s free cash flow (FCF) per share.
Piper Sandler’s analysis suggests that Salesforce’s FCF per share could double to more than $20 by fiscal year 2029 (calendar year 2028) from $9.65 in fiscal year 2024 (calendar year 2023). This outlook holds even if Salesforce’s revenue growth remains at a modest 8-9%.
The firm noted that Salesforce’s valuation multiples, including enterprise value to sales (EV/S), enterprise value to free cash flow (EV/FCF), and price to earnings (P/E), are the lowest among its large-cap software peers.
Piper Sandler’s confidence in Salesforce has been bolstered by recent discussions with the company’s leadership, partners, and customers. These conversations have led to the belief that Salesforce’s new pricing and packaging strategies can expand adoption of its multi-cloud offerings.
In addition, the launch of Agentforce, powered by the Atlas Reasoning engine, in conjunction with Data Cloud, is expected to help stabilize demand or potentially drive a recovery as the company enters calendar year 2026 (FY27).
The firm has revised its estimates for Salesforce and applied a target enterprise value to free cash flow multiple of 23x, up from 22x previously. Additionally, Piper Sandler has reduced the discount rate used in its valuation from 16% to 14%, contributing to the higher price target.
Salesforce stock is now poised for potential growth according to the investment firm’s analysis, with the revised price target reflecting an optimistic outlook for the company’s financial performance in the coming years.
In other recent news, Salesforce.com reported strong second-quarter earnings, with earnings per share coming in at $2.56, beating the consensus estimate of $2.36. The company also reported an 8% increase in sales, driven primarily by a 9% increase in subscription and support revenue. Salesforce also entered into a definitive agreement to acquire Own Company, a provider of data protection and management solutions, for $1.9 billion in cash.
The company’s recent DreamForce conference showcased Agentforce, a major development in its intelligent agent platforms, which was met with enthusiasm. This group of autonomous robots powered by artificial intelligence has generated interest and could re-accelerate subscription revenue growth.
Analysts like BofA Securities, TD Cowen, Needham & Baird have maintained their ratings on Salesforce, while Truist Securities revised its price target on Salesforce to $300, maintaining a buy rating.
However, Erste Group downgraded the stock from Buy to Hold due to slower growth expectations. Salesforce also announced a partnership with IBM to integrate advanced AI capabilities into its platform and reported a significant increase in adoption of its Data Cloud platform, with 130% year-over-year growth in its paid customer base. These are among the latest developments in Salesforce’s ongoing efforts to stay at the forefront of the customer relationship management industry.
InvestingPro Insights
Piper Sandler’s positive rating on Salesforce.com, Inc. (NYSE:CRM) is reflected in the company’s strong financial health and investment potential as indicated by the latest data from InvestingPro. Salesforce has an impressive gross profit margin of 76.35% for the past twelve months through Q2 2025, highlighting the company’s efficiency in generating revenue relative to its cost of sales. This strong margin supports the company’s positive outlook on Salesforce’s ability to expand its free cash flow in the coming years.
