Is (CRM) Overvalued? by TechStockProspector


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									Robert DeFrancesco’s
August 24, 2012

Is (CRM) Overvalued?
NOW AVAILABLE: The August 2012 issue of Tech-Stock Prospector is available for
the Amazon Kindle or Kindle for iPad/iPhone reading app.

Here are some of the topics covered in the August 2012 issue:

*Strategy Update: Q2 tech earnings
*NetSuite firing on all cloud cylinders
*OpenTable delivers tasty results
*Unlocking value in Symantec
*Qlik Technologies navigates European slowdown
*Guidewire Software moves insurers to the cloud
*Is Akamai Technologies getting its momentum back?
*LinkedIn making social work
*Why some big money managers like Ultimate Software
*Assessing Citrix Systems amid the changing networking landscape
*Is Palo Alto Networks worth the price?
*Sourcefire builds its networking security deal pipeline
*Riverbed Technology bounces back on improved execution
*Acme Packet pushes out rebound hopes to 2013
*More new highs for one small-cap cloud-software player
*TSP Deal Report: Eloqua IPO revs up

Order the August 2012 issue here:

------------------------------------------------------------------------------------------------------------ (CRM, $148.50) shares closed flat for the session, but
recovered off the morning low of $140.77 as traders digested last
night’s fiscal Q2 earnings report.

For the July quarter, revenue of $731.6 million was up 34% year over year, topping
the consensus estimate of $728.1 million, and EPS of 42 cents beat the consensus by
three cents.

Here are some key fiscal Q2 metrics:

*Subscription and support revenue +35%
*Deferred revenue of $1.34 billion rose 43%
*Unbilled deferred revenue of $2.8 billion rose 50%
*Billings growth of roughly 30% matched expectations. Some analysts pointed out
that billings would have been up 35% without the negative currency effects.
*Cash flow from operations rose 64% to $136 million
*Cash & investments total $1.8 billion

With a market cap of $20.5 billion, Salesforce trades at 6.7 times the new fiscal 2013
(Jan.) revenue guidance midpoint of $3.03 billion. On the fiscal 2014 consensus
revenue estimate of $3.82 billion, the forward price-to-sales (P/S) ratio is 5.4.

While some Wall Street analysts are quite positive on Salesforce shares at these
levels (Deutsche Bank has a price target of $220), my fair–value target is $166,
which is generated by applying a P/S ratio of 6x to the fiscal 2014 consensus
revenue estimate.

I think the company is executing well and has a lot of growth potential with its
Service Cloud (now at an annual revenue run rate of $500 million) and Marketing
Cloud initiatives.

But the current valuation leaves little room for disappointment. Salesforce shares
would be more attractive on a pullback into the low $130s.


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Tech-Stock Prospector Managing Editor Rob DeFrancesco has more than 20
years of experience covering the tech sector. He is a former senior writer with
Louis Rukeyser’s Wall Street., launched in 2003, is an investment-research service
focused primarily on the networking, storage, security, wireless and software
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