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Bull of the Day: Salesforce.com (CRM)

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During the disruptions caused by the continued outbreak of Covid-19, most businesses have had to adapt to the new environment in ways they hadn’t even considered prior to the pandemic.

Businesses that used to rely primarily on in-person transactions with customers have had to make the most drastic changes - rearranging staff, supply chains and customer interactions just to survive in the new environment.


On the other side of that coin are companies that already had a structure that allowed them to deliver goods and services to their customers with little or no disruption. In fact, in some cases these firms have realized that they could actually run more efficiently in a configuration that was originally mandated by social distancing. Unnecessary or extraneous real estate, personal and other assets could be jettisoned without affecting the overall performance of core business lines.


Salesforce.com (CRM - Free Report) is one of the lucky ones. After two quarters of Covid-affected results, it looks like they’ll not only easily survive the crisis, they’ll emerge on the other side better than ever.

The most recent presentation included a huge earnings beat on modest revenue gains. That earnings number was padded somewhat by an unrealized investment gain in a cloud-based software company that went public during the quarter, but it was pretty much a blowout quarter even excluding that item.


Revenue grew to $5.15 billion – the second consecutive quarter of a 29% Y-o-Y increase and above the (already upwardly revised) consensus estimate of $4.9B. Earnings of $1.44/share more than doubled the Zacks Consensus Estimate of just $0.67/share.


Just as he’s done over the entire history of the company he founded after leaving now-competitor Oracle, CEO Marc Benioff didn’t simply deliver a great quarter, he and the company also raised full-year guidance to $3.73/share in earnings on $20.75B in revenues.

Benioff once made a list of “CEOs we’d like to have as (US) President” in an industry publication.


The company also made the decision to eliminate 1,000 positions – or about 2% of the total workforce – to improve on recently realized gains in operational efficiency. In typical Benioff style – he’s regarded as one of the most accessible CEOs in any industry – employees who were laid off were offered generous severance packages as well as the opportunity to find new positions inside the organization. 


The analyst community jumped on the increased guidance. Fifteen out of fifteen analysts included in the Zacks rank raised their estimates, increasing the full year Zacks Consensus Earnings Estimate from $2.97/share all the way to $3.74/share – a penny over the company’s own estimate, and a 25% gain.


Finally, there’s the recent inclusion of Salesforce into the Dow Jones Industrial Average.


After Apple (APPL) announced that they would be splitting shares 4-for-1, the publisher of the index, S&P Dow Jones, made changes to make up for the relative decline in weight for technology stocks. They decided to drop ExxonMobil (XOM - Free Report) , Pfizer (PFE - Free Report) and Raytheon (RTX - Free Report) which traded between $38 and $62/share and replace them with Salesforce, Amgen (AMGN - Free Report) and Honeywell (HON - Free Report) , which were trading at $273, $248 and $165/share, respectively.


All three new names rallied significantly after the news of their imminent additions.


Though inclusion in the granddaddy of equity indices doesn’t do anything to materially change the value of an enterprise, it does confer a sense of legitimacy as one of the 30 most prestigious industrial stocks in the US. It also means that new investments in Dow-indexed funds and ETFs will force managers into buying CRM shares.

“Industrials” included purveyors of products like rubber and leather 100 years ago, now cloud computing and Software as a Service have a seat at the table. Salesforce.com is one of the best in the breed.


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