Shares of software specialist Salesforce (NYSE:CRM) are popping higher off the back of an overall encouraging third-quarter earnings report. Additionally, management disclosed some hopeful observations that bolster the strategic view of CRM stock, as evidenced by institutional support. Finally, shares also benefit from some tactical considerations that investors shouldn’t ignore.
First off, Salesforce — which provides customer relationship management (CRM) software and applications — grabbed business headlines for its earnings print. In Q3, the company posted EPS of $2.11 according to CNBC, which stands favorably next to the analyst expectation for EPS of $2.06. For revenue, the software specialist also rang up $8.72 billion, matching the consensus view.
Notably, revenue increased 11% from the year-ago quarter’s tally of $7.84 billion. However, as CNBC points out, Salesforce has historically expanded the top line by “well over 20%” annually. Unfortunately, the firm’s growth rate slipped due to businesses looking to “reduce spending due to economic uncertainties and high interest rates.”
That said, Salesforce did see revenue pop up by 12% to $2.07 billion in its biggest business unit, which covers customer support. Software sales increased by 12% to $1.9 billion as well. Looking ahead, management now foresees full-year adjusted EPS landing between $8.18 and $8.19, up from a prior forecast of between $8.04 and $8.06.
Two Catalysts Undergird CRM Stock
In an interview with Barron’s, Salesforce Executive Vice President for Investor Relations Mike Spencer said that the company enjoyed a strong quarter in the Americas, helped by “a large deal.” At the same time, Spencer remarked that the firm encountered something of a dichotomy: Weak tech-sector demand and strong public-sector demand.
Nevertheless, Spencer also said that the company’s conversations with its customers reflected a “more optimistic tone” about the economic outlook. Further, Salesforce has witnessed “early adoption of its new data-cloud offering,” with some clients beginning to test artificial intelligence (AI) based application features.
Given the broader strategic implications of AI — which, by Spencer’s admission, will take some time to materialize — it’s no surprise that CRM stock enjoys institutional support. Below are top five backers of CRM based on 13F disclosures:
- Vanguard owns 82.38 million shares as of Q3 2023.
- BlackRock (NYSE:BLK) owns 70.80 million shares as of Q3.
- State Street (NYSE:STT) owns 44.17 million shares as of Q3.
- FMR LLC owns 36.07 million shares as of Q3.
- Capital World Investors owns 19.10 million shares as of Q3.
However, CRM stock appears to be benefiting from near-term speculation as well. Specifically, Fintel’s screener for options flow — which exclusively targets big block transactions likely made by institutions — reveals a large number of sold calls that are in the money (ITM) for the countervailing party (i.e. bullish call buyers) or near ITM.
To cover this exposed liability, call writers (sellers) basically have two choices: Buy the calls in question or buy the underlying security in the open market (especially if the position is naked). Either way, the bulls are likely anticipating a tactical bonanza.
Why It Matters
Within the last three months, Wall Street analysts rate CRM stock as a consensus moderate buy. This assessment breaks down as 26 buys, 12 holds and one sell rating. The average price target for shares lands at $271.97, implying about 9% upside potential.
On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
