On Thursday, BMO Capital Markets reiterated its Outperform rating on shares of Salesforce (NYSE:CRM), highlighting the company's growth prospects in the context of broader IT budget forecasts and the potential of its Agentforce platform.
The firm anticipates that IT budgets could see a modest improvement in Calendar Year 2025 (CY25) compared to Calendar Year 2024 (CY24), with particular growth expected in budgets and use cases for Artificial Intelligence (AI).
The analyst from BMO Capital projected that initial guidance for CY25 might be more conservative due to the demand-related guidance provided by the coverage universe for CY24, which left minimal room for upside. This conservative outlook could exert some pressure on valuations within the analyst's coverage universe, potentially leading to buying opportunities. Among the top picks identified by the firm are SAP and Salesforce.
Salesforce's Free Cash Flow (FCF) to revenue growth valuation is considered expensive when compared to historical levels. However, BMO Capital believes that Salesforce is justified in trading at a premium to historical measures. This belief is based on the potential of Agentforce, which is expected to contribute positively to the company's valuation.
The firm further clarified its position on Salesforce's valuation, stating that it is reasonable when compared to other Growth at a Reasonable Price (GARP) stocks, especially when assessed on the basis of FCF metrics. Salesforce's strategic emphasis on AI and the introduction of platforms like Agentforce are key factors supporting the company's premium valuation, according to BMO Capital Markets.
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