Salesforce (CRM) is seeing its gains eroded by the macro factors moving tech sectors lower on Friday, but that could be a positive for those looking for options as trade fears mount.
Shares of the San Francisco-based cloud king jumped to start the day, rising over 6% on the open after an excellent earnings release. After a hellacious news dump that included Fed comments, Chinese tariff retaliation, and yet more presidential tweets threatening trade war escalation, that gain has been cut in half as the tech sector reels on a slew of newsbreaks.
However, Salesforce's business is best-in-class and with raised guidance into the year-end, many analysts are advising that Salesforce should serve as a safe haven rather than a trade-sensitive stock.
"We see supportive near-term macro commentary and limited exposure to trade disputes combining with a >$200 billion TAM and strong secular tailwinds to make CRM one of the best positioned software stocks in today's environment," Morgan Stanley analyst Keith Weiss said. "CRM is one of the best secular stories in software in our view, and has more direct participation in secular demand for mobile, social and cloud than any name we follow."
With the secular nature of its growth engines in mind, the macro fears are not sufficient to temper any optimism on the name. Weiss reiterated his "Overweight" rating and raised his price target to $180 from $178.
Services remain largely insulated from trade tensions given their escape from export and import tariff measures. Salesforce remains doubly so with a revenue base that is diversified across regions, only about 2% of which comes from mainland China.
Still, navigating a difficult environment such as this one takes an executive team that can execute and tell a positive story to sustain shareholder confidence. This is especially so as European recession fears foment and the cut in technology spend among major European firms could falter.
In this regard, the assets the company holds in its C-Suite may be undervalued as well.
"We believe Salesforce is pursuing a strategic vision of becoming a System of Customer Intelligence, with a uniquely strong CEO duo driving the vision and execution," RBC Capital Markets analyst Alex Zukin said. "We continue to believe that CRM's co-CEO's, Marc Benioff and Keith Block, represent a team that combines world-class visionary leadership with proven large company operational and go-to-market execution capabilities that are unmatched in the Enterprise Software industry."
He added that a dearth of formidable competition that could impact pricing for the company's services and a market ripe for expansion make the company enticing as it operates at a multiple near its lowest levels of the year.
"We see the recent strong quarter, 20%+ durable growth cadence and increased margin leverage from recent acquisitions as a buying opportunity for a top quality asset trading at a ~25% discount to peers," Zukin concluded.
He added that while he is confident that management is up to the task of keeping the growth story on track, as evidenced by the firm's long-term track record and its recent earnings results, investors should keep their eye on the long term as headlines distract now.
"While negative sentiment is increasingly focused on the short term, we believe Salesforce is pursuing a broader strategic vision of evolving from a System of Customer Record to a System of Customer Intelligence (in their words, "Customer360")," he concluded. " We believe the next 10 years will be about harvesting and operationalizing the data generated both within this application set and beyond it to enable clients to understand, act, react, predict and prescribe modern customer experiences in real-time. With CRM having one of the richest customer data-sets on the planet, we see the recent MULE and DATA deals as a foundation for commercializing this data story going forward."
Given these growth engines and the TAM that other companies like Oracle (ORCL) Alphabet (GOOGL) , and Microsoft (MSFT) are clearly coming into behind Salesforce, Zukin reiterated his "Outperform" rating and raised his price target nearly 10%, from $181 per share to $200.
"While deceleration is inevitable, we think Salesforce can continue to drive premium growth for its size and it remains an important strategic asset," he concluded.