Target $83 on Buy-Rated CRM

We believe over the long term, Salesforce.com, Inc. (CRM - Analyst Report), which consistently beats Wall Street expectations, will emerge as the leader in a potentially huge market for on-demand software. The business-software maker has had strong traction in the larger enterprise market and has partnered with Google (GOOG - Analyst Report) to serve small businesses.

Although a relatively new entrant, Salesforce.com has built a strong customer base due to the quality of its product offerings over the past five years. It added more paying subscribers in the October quarter than its closest on-demand competitor has in its complete history, which is a remarkable feat.

In fact, Salesforce.com is well-positioned to see continued subscriber growth momentum for the next several years. A steady and gradual improvement in large deals, including recent ones like Accenture (ACN - Snapshot Report) and Merrill Lynch (MER), already brings the company higher revenue visibility than its peers.

We believe a price-to-sales multiple is an appropriate valuation metric for CRM shares, given the early stage of the company and its software-centric business. Traditionally, leading software providers trade in a range of 5x to 15x revenue. The stock currently trades at a P/S multiple of 7.0x, but we believe the stock can approach a multiple of at least 9x revenue over the long-term as the leader in the space. We therefore maintain a Buy rating and a price target of $83 on the stock.

Read the full analyst report on CRM