By Brendan Gilmartin, VP Research, Selerity
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%.
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.
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)
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.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.