By Brendan Gilmartin
Salesforce.com (CRM) is scheduled to report 1Q 2013 earnings after the close of trading on Thursday, May 17, with a conference call to follow at 5:00 p.m. The actual results are typically released at 4:05 p.m. EST. Salesforce.com recently touched an all-time high of $164.75 (April 19) before a disappointing outlook from Cisco Systems (CSCO) and concerns over the outlook for U.S. IT spending in the second half of the year sent the shares reeling ahead of the 1Q release.
Outliers & Strategy
- Non-GAAP Earnings Per Share. For the first quarter, Salesforce.com previously indicated it expects to report
- Non-GAAP EPS of approximately $0.33 to $0.34. The current Street estimate is $0.34 (Source: Yahoo! Finance)
- Revenues. Revenue is projected to be in the range of approximately $673 million to $678 million. The Street is above the high end of this range at $678.15 mln . The high number on the Street is $690 mln.
- Adjusted Earnings Per Share Guidance (2Q 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 $0.38.
- Adjusted Earnings Per Share Guidance (FY 2013). Look for Salesforce.com to give an updated outlook for 2013. The current estimate is $1.61. The company previously guided for $1.58 to $1.62.
- Revenues Guidance (FY 2013). Look for a possible update for 2013. The Street is targeting revenue of $2.95 bln. The company previously guided for $2.92 bln to $2.95 bln.
One of the major knocks against Salesforce.com is its lofty valuation at more than 65x forward earnings and 25x cash flow. These metrics are fairly rich, even with a 28% projected 5-year earnings growth rate and gross margins near 80%.
Salesforce.com shares are coming off all-time highs ahead of Thursday's earnings release. The shares dropped $13.54 (-9.09%) to $135.44, a day after Cisco Systems warned it sees sluggish spending in IT, particularly in enterprise.
- 05/16: Canaccord Genuity maintained a Buy rating and a price target of $180 on Salesforce.com, according to StreetInsider.com. The firm reportedly sees 3% - 8% upside in the shares following the 1Q release.
- 05/14: Jefferies reiterated a Buy rating on Salesforce.com ahead of the 1Q earnings results, according to StreeInsider.com. The firm believes broad demand remains strong, while recent field checks were positive. Jefferies has a $170 price target.
- 05/10: William Blair reportedly issued cautious comments on Salesforce.com, according to a report on Seeking Alpha. The firm reportedly expressed concerns that the U.S. enterprise business was tracking below plan. This followed Cisco's weak outlook.
- 05/03: Credit Suisse upgraded Salesforce.com from Neutral to Outperform and raised the price target from $145 to $185, according to a post on Benzinga.com. The firm cited product upgrades and an expansion cycle.
Salesforce.com shares are off nearly 15% since the highs near $160 earlier this month. More recently, Salesforce.com tested and held a critical support level near $135 (high ahead of the 4Q report in February). Should earnings surprise to the upside and reverse the recent slide, look for resistance near $145, followed by the 20-Day SMA near $150. Below $135, support is at the 200-Day SMA near $130, followed by $125 and $120. (Chart courtesy of StockCharts.com)
Salesforce.com shares are off ~15% over the past several weeks amid concerns over a slowdown in U.S. IT spending, management changes, restructuring efforts, and weakness in the enterprise division. Much of the focus will therefore center on the outlook for next quarter and the balance of the year. So long as guidance is at or above consensus views, the shares could recover a portion of the recent losses. Conversely, a tepid outlook could pull the shares below critical support near $135.
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.