The CRM (customer relationship management) sector has been experiencing rapid growth as technology adoption continues to grow. Studies show that the software-as-a-service (SaaS)-based CRM sector could reach $7.9 billion in 2016, an annual growth of 15% from $3.9 billion in 2011. Since competition is also intensifying, the key is to identify what companies will be able to profit the most.
One of the big companies in this industry is Salesforce.com (CRM), which is a provider of enterprise cloud computing and social enterprise solutions, and is also market and technology leader in on-demand CRM applications and business services.
Although salesforce.com has some issues to overcome, there are a great deal of positives that outweigh these negatives and this will become apparent when the second quarter fiscal 2014 results are announced on Aug.29, 2013, after the close of the market:
- Presently in a bottoming-out process which is great for a suitable entry price on this call option.
- A consistent uptrend since 2008 despite a rocky few months of late.
- Past performance makes for an easier present performance.
- The ExactTarget acquisition is starting to show credibility.
- Focus on the outlook for both the third quarter and full year is more positive.
- Hedge funds are bullish on the stock.
- Wall Street analysts have a positive opinion in regard to CRM.
Salesforce stock had seen a consistent uptrend since establishing lows during the 2008 financial crisis, but has been on a roller-coaster ride since March this year. However, for the astute trader this has been a very profitable situation where several pullbacks have allowed for good entry points.
Earnings – Past vs. Present
Earnings of Salesforce have managed to beat Street view twice in the past four quarters. Wall Street expects Salesforce to earn 7 cents a share, according to analysts polled by Thomson Reuters.
Quarterly revenues are estimated to increase 28.4 percent to $939.25 million from $731.65 million last year while the company sees revenue of $931 million to $936 million, an increase of 27 to 28 percent year-over-year.
Also, expenses and billings are more controlled compared to last quarter.
ExactTarget is Shaping Up
The acquisition of the ExactTarget portfolio makes CRM’s Marketing Cloud much more credible for large enterprises and expands the company’s TAM as marketing automation becomes a significant area of expenditure.
Positive Signs Ahead
The market will be focusing on the outlook for both the third quarter and full year, where the expectation is an implied move of 7.5 percent, ahead of historical average.
Hedge Fund Activity
At the end of the second quarter, a total of 45 of the hedge funds were bullish on CRM, a change of 7% from the first quarter. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings substantially. David Costen Haley’s HBK Investments had the biggest position in salesforce, worth close to $154.2 million.
Wall Street analysts, in general, have a positive opinion on Salesforce.com stock, with 37 out of the 44 analysts covering CRM giving a “buy” or “strong buy” rating.
The latest analyst update came from Deutsche Bank, who reiterated a “buy” rating on shares of salesforce. They now have a $57.00 price target on the stock.
Salesforce.com has experienced solid revenue growth, and although suffering increasing loss margin and operating costs earlier, which was apparent in the May report, this has since been addressed. The company has a strong market position that it enjoys from being a first mover in the industry and providing low ownership costs for its customers.
Therefore, based on the facts above the following options trade is recommended.
OPTIONS TRADE: Buy the CRM Jan 2014 45.000 call (CRM140118C00045000) at or under $3.25, good for the day. Place a protective stop limit at $1.30 and a pre-determined sell at $5.00.
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