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Salesforce a Solid Buy as It Gears Up to Report Q4 Earnings

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If there’s one company that has defied broader industry weakness and fended off competition, it is salesforce.com, inc. (CRM - Free Report) . Salesforce’s stock has not only rallied more than 40% in the trailing 52 weeks, it is currently at an all-time high.

While some skeptics may say that the stock is overvalued, markets won’t be paying heed to this when the company reports fourth-quarter results after markets close on Mar 4. This is because most of the analysts believe Salesforce will report earnings per share of around 55 cents on sales of $3.6 billion for the fourth quarter, higher than the data service and software provider’s earnings of 35 cents a share on sales of $2.9 billion a year ago.

Salesforce, in fact, has a superb earnings track record and has come up with better-than-expected results for the last 11 quarters. Such strong earnings pushed profits up 47% per annum over the last five years. Analysts further expect the average earnings growth for the next five years at 32%.

The stock, by the way, has a high valuation, with a forward P/E of 58.9. However, with shares trading at historically high valuations and earnings set to rise in the next five years, the valuation should not restrict the stock from building on recent gains.

What Will Drive Earnings Results in Q4?

Salesforce’s initiative to expand globally to capitalize overseas demand for cloud-based applications should lift the top line. Notably, partnership agreements with bigwigs like Amazon.com, Inc. (AMZN - Free Report) and Alphabet Inc. (GOOGL - Free Report) will help the company expand its client base significantly and in turn boost revenues. Lest we forget, only a third of its revenues come from outside the United States, so there is plenty of scope for growth in the days to come.

Oppenheimer Equity Research added that stronger seasonal spending; positive partner feedback on CRM deal activity and positive data read-throughs should further provide some fillip to the company’s fourth-quarter top line. Analyst Zev Fima further chipped in and said that “we are bullish on shares of CRM as we view Salesforce as a key player in the digital revolution.”

It’s also worth mentioning that despite rivals Adobe Inc. (ADBE - Free Report) and Microsoft Corporation (MSFT - Free Report) putting up a valiant effort to gain market share, Salesforce has largely remained unscratched. To top it, the acquisition of MuleSoft should propel the top line. After all, the acquisition helped Salesforce expand the total addressable market by unlocking data previously trapped on legacy systems, to be used on the Salesforce platform.

These positives coupled with a strong management team should help the company post solid fourth-quarter results and reach its FY22 target of $21 billion to $23 billion in revenues.

Salesforce a Solid Investment Ahead of Earnings

Salesforce has average four-quarter earnings surprise of a positive 35.00%.

In fact, the Zacks Consensus Estimate for its current-year earnings has trended up over the past 60 days, as estimates have rose from $2.54/share three months ago to $2.61/share right now.

Salesforce currently has a Zacks Rank #2 (Buy). The company’s expected earnings growth rate for the current quarter is a solid 60%. Actually, the company’s projected earnings growth rate for the current year is 93.3%, way more than the Computer - Software industry’s expected gain of 11.3%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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