Fourteen analysts raised price targets on Friday morning. Another two reiterated their Overweight ratings. And I'm guessing I missed a few more.
I get it. Everyone loves Salesforce.com (CRM) . And what's not to love?
The company blew past the $0.47 EPS estimate Wall Street expected when it posted gains of $0.66. Core gains of $0.52 still exceeded expectations if we want to go there especially after the company benefited $0.11 from market-to-market investments. Revenue of $4 billion squeezed past the $3.95 billion Wall Street laid out.
I find it ironic Wall Street is celebrating CRM pulling a rope-a-dope. Don't believe me? Let's take a look back to Q1. After crushing estimates last quarter, CRM management lowered its 2nd quarter EPS estimates from $0.66 to $0.47.
Do those numbers look familiar?
Go back and check Q2 results: CRM reported EPS of $0.66 versus a $0.47 estimate. So, the company beat its own lowered estimates by reporting a number that was in line with the original estimate. That number also came with a bit of help, but I digress. Don't worry about the man behind the curtain.
The irony doesn't actually end there though. Full-year guidance at the end of Q1 was $2.88 to $2.90 per share, but updated EPS guidance has the full-year at $2.82 to $2.84. Bet you think I'm going to complain about this as well. Well, you'd be wrong. What's not being discussed with this number is the quick settle on the Tableau acquisition and the $15.7 billion of dilution. The full-year guidance is strong. That's the real reason for optimism. The same thing can be said about Q3. Share count for Q3 will be 15% higher and for the full-year 8% higher when computing diluted net income.
So, if you want to celebrate anything, celebrate the full-year guidance. It's really more like $3.045 to $3.067, or roughly the beat in the quarter Salesforce just reported.
As far as revenue goes, the company guided its full-year from a range of $16.1 billion - $16.25 billion to a new range of $16.75 billion to $16.9 billion. Around $550 million to $600 million of the $650 million raise stems from the Tableau acquisition. The other $50 million we saw delivered in Q2.
My point in going through numbers and guidance like this is to get investors looking deeper than the headlines. Numbers, headline numbers, are easy to manipulate. They drive instant reaction, create motion, and can draw momentum (either bullish or bearish) into the price action before we have time to rationalize if strength or weakness truly exists.
In terms of the technical picture, until CRM clears $160, we are stuck in a wide trading range with a targeted entry of $135 to $140 and profit-taking of $155 to $160. I wouldn't look short until we are under $135, but I would consider a breakout buy above $160. Traders can absolutely play the trading channel range, but right now that doesn't favor buying.
Overall, I like the purchase of Tableau as an add on to CRM. The business is consistent and not going anywhere, but this wasn't the blow out quarter the headlines would have you believe. I'll wait until we see $140 or break above $160 before I make a move in the name.