May the Salesforce Be With You

Advertisement

“Use the Force, Luke.” That’s the admonition from Obi-Wan Kenobi to his protégé Luke Skywalker in the Star Wars saga as the young Jedi attempts to make a difficult shot that will destroy the Death Star. Luke channels the Force, makes the shot and saves the Rebel Alliance. During the past two trading sessions, customer relations software and cloud computing firm Salesforce.com (NYSE:CRM) could have used a bit of “the Force” to attract buyers to its stock. CRM shares have been dumped to the tune of about 15% during the past two trading sessions after the company reported disappointing billings for its fiscal third quarter last Thursday.

Although Salesforce.com managed to best adjusted earnings estimates on both the top and bottom lines, the all-important billings metric for the quarter (sales plus the change in deferred revenue from the prior quarter) totaled just $567 million. Although billings increased 28.5% from the same period a year ago, the number fell short of estimates calling for billings to rise by 33%.

SalesForce.com CRMThe billings miss — and the subsequent bludgeoning of the shares — shows just how important the metric is to software-as-a-service companies like Salesforce.com, whose competitors include software behemoths Oracle (NASDAQ:ORCL) Microsoft (NASDAQ:MSFT) and SAP AG (NYSE:SAP). But the billings miss, and the severe punishment the stock suffered because of it, actually could be the Force bargain hunters can use to get into CRM at a very attractive price.

Proffering this bargain-price theory is Raymond James analyst Terry Tillman. On Monday, Tillman raised his rating on CRM shares to “outperform” from “market perform,” with a target price of $135. CRM closed Monday at $111.98, which means Tillman is expecting Salesforce.com share to surge 23%! In his note to clients, Tillman pointed out that Salesforce.com’s fiscal 2012 revenue forecast actually was above what Wall Street was expecting, and that could bode very well for CRM shares in the coming year.

Here’s the money quote from Tillman’s note to clients: “Initial FY13 revenue growth guidance above consensus supports high 20%/30% top-line growth. We believe a market that favors growth over profits could look favorably upon a story growing at 30%-plus on a $3 billion revenue base with upside opportunities abound.”

If Tillman is correct, investors might want to channel the Force and take their own shot at CRM shares while they still trade near their 52-week low.

As of this writing, Jim Woods did not hold a position in any of the aforementioned stocks.


Article printed from InvestorPlace Media, https://investorplace.com/2011/11/salesforce-com-crm-value-stock-to-buy/.

©2024 InvestorPlace Media, LLC