Salesforce.com Rallies Ahead Of 4Q Earnings And Outlook For FY2012

Feb.22.12 | About: Salesforce.com, Inc. (CRM)

By Brendan Gilmartin, VP Research, Selerity

Overview

Salesforce.com (NYSE:CRM) is scheduled to report 4Q 2012 earnings after the close of trading on Thursday, February 23, with a conference call to follow at 5:00 p.m. The actual results are typically released at 4:05 p.m. EST. Despite the recent strength, Salesforce.com shares failed to push through the October/November highs and are struggling to hold a key technical level near the 200-Day Moving Average at $128.

Outliers and Strategy
Key measures covered by Selerity:

  • Non-GAAP Earnings Per Share. For the fourth quarter, Salesforce.com previously indicated it expects to report Non-GAAP EPS of approximately $0.39 to $0.40. The current Street estimate is $0.40 (Source: Yahoo Finance)
  • Revenues. Revenue is projected to be in the range of approximately $620 million to $624 million.
  • Adjusted Earnings Per Share Guidance (1Q 2013). In most cases, Salesforce.com provides earnings guidance for the upcoming quarter that tends to have a direct impact on the direction of the share price. The current estimate is $0.36.
  • Adjusted Earnings Per Share Guidance (FY 2013). Look for Salesforce.com to give an outlook for 2013. The current estimate is $1.62.
  • Revenues Guidance (FY 2013). Look for an initial update for 2013. The Street is targeting revenue of $2.91 bln.

Given Salesforce.com's valuation and recent advance in the share price, a weak number or below consensus results on any of the aforementioned metrics may be seen as a disappointment.

One of the major knocks against Salesforce.com is its lofty valuation at more than 80x forward earnings and 34x cash flow. These metrics are fairly rich, even with a 27% projected five-year earnings growth rate and gross margins near 80%.

Recent News

2/16: Goldman Sachs reiterated a Buy rating and a $150 price target on Salesforce.com ahead of the company's 4Q earnings release, according to a post on StreetInsider.com. The firm also sees Non-GAAP EPS and revenues at the high end of the range.

02/14: Jefferies raised its price target on Salesforce.com from $144 to $152 ahead of its 4Q earnings release, according to a post on StreetInsider.com. The firm cited strong deal activity and an increase in enterprise customers.

01/19: According to Benzinga.com, Morgan Stanley reiterated an Overweight on Salesforce.com following a meeting with CFO Graham Smith. The firm cited reacceleration of billings and commitment to improved margins as factors for the positive rating.

01/04: Sanford Bernstein reiterate an Underperform rating on Salesforce.com, according to a post on Barron's. The firm noted that growth is slowing for Salesforce.com, which is becoming more dependent on acquisitions to expand.

Technical Review

Salesforce.com shares are up more than 25% YTD, recently re-taking the 200-day SMA for the first time since mid-November. The upward sloping 20-Day SMA and extended MACD are testament to the positive momentum over the past two months. Should earnings disappoint or prove to be a "sell the news" scenario on in-line results, look for support at $125, followed by $120 and $115. Resistance is at the recent high near $135. (Chart courtesy of StockCharts.com)

Summary

Salesforce.com shares are rallying ahead of the 4Q 2012 earnings release, up 25% YTD and its highest level in three months, based on strength in the enterprise segment and forecasts for increased billings. But with relatively high short interest (11.6% of the float), a recent failure to hold the 200-Day SMA, high valuation (80x FWD earnings), and concerns over deceleration of growth, the outlook for 1Q and FY 2013 will come under close scrutiny heavily impacted near-term price direction.

Disclaimer: By using this report, you acknowledge that Selerity, Inc. is in no way liable for losses or gains arising out of commentary, analysis and or data in this report. Your investment decisions and recommendations are made entirely at your discretion. Selerity does not own securities in companies that they write about, is not an investment adviser, and the content contained herein is not an endorsement to buy or sell any securities. No content published as part of this report constitutes a recommendation that any particular investment, security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.