On Tuesday, Scotiabank (TSX:BNS) began coverage of Salesforce.com (NYSE:CRM) shares with a bullish outlook, assigning a Sector Outperform rating and establishing a price target of $425.00 for the cloud-based software company's stock. This target suggests a 24% potential rise from current levels, based on a 26 times multiple of the estimated 2026 Enterprise Value to Free Cash Flow (EV/FCF).
The analyst noted that Salesforce's shares have bounced back since the first-quarter earnings report, which initially saw a 20% drop in stock price the day after the announcement. Despite this recovery, the stock is currently trading at a multiple of 21 times the projected 2026 EV/FCF, which the analyst suggests does not fully reflect the company's growth prospects.
While the market consensus has adjusted expectations for subscription revenue growth to single digits for the next year, the analyst highlighted several growth drivers for Salesforce. These include its multi-cloud strategy, international expansion, industry-specific solutions, and innovations in pricing and packaging. Moreover, the analyst pointed out that Salesforce's Data Cloud is performing well, and the company has recently announced the general availability of Agentforce.
Agentforce aims to help businesses automate some of their customer service operations, a tool that is increasingly in demand as companies look to improve efficiency. Salesforce is offering enterprise-level customers the opportunity to trial Agentforce for free through its Foundations program, which includes basic functionalities of Salesforce's other clouds like Marketing, Commerce, and Data.
Early feedback on this initiative has been positive, and it may encourage broader adoption of Salesforce's multi-cloud offerings.
The analyst concluded that the current valuation of Salesforce does not seem to factor in the potential benefits of artificial intelligence (AI) and believes there could be room for upward revisions to consensus Free Cash Flow (FCF) estimates. It was also mentioned that cash taxes are expected to normalize in the following year, which could further influence financial projections.
In other recent news, Salesforce.com Inc (NYSE:CRM). has been the focus of varying analyst outlooks. Erste Group upgraded Salesforce from Hold to Buy, citing the company's capacity for consistent revenue growth and operating margin expansion.
The firm also projected a double-digit percentage increase in Salesforce's earnings per share for fiscal years 2025 and 2026. On the other hand, Erste Group and TD Cowen downgraded the stock to Hold due to projected slower growth.
Salesforce has also been highlighted by BMO Capital Markets, Loop Capital, and Piper Sandler. BMO Capital Markets increased the stock's price target from $305.00 to $385.00, Loop Capital adjusted its price target for Salesforce.com from $270.00 to $340.00, and Piper Sandler maintained a positive stance on Salesforce.com Inc, reiterating an Overweight rating and a price target of $325.00. These adjustments reflect confidence in Salesforce's future performance, particularly in relation to its new product, Agentforce.
Furthermore, Salesforce reported strong second-quarter earnings, with earnings per share of $2.56, an 8% increase in sales, and a 9% rise in subscription and support revenues. The company also acquired Zoomin and Own Company for $1.9 billion in cash. Salesforce plans to hire 1,000 new employees to support Agentforce sales, indicating a stable business capable of expanding its workforce.
In other developments, Salesforce was identified by investment firm Starboard Value LP as a potential value creation opportunity at the 2024 Active-Passive Investor Summit. Moreover, hedge fund D.E. Shaw backed Mantle Ridge's campaign for changes at Air Products and Chemicals (NYSE:APD), Inc., highlighting Salesforce's ongoing efforts in the industry. These are recent developments that emphasize the company's growth and diversification strategies.
InvestingPro Insights
Salesforce's strong market position and financial performance are further highlighted by recent data from InvestingPro. The company boasts an impressive gross profit margin of 76.35% for the last twelve months as of Q2 2025, underscoring its operational efficiency. This aligns with one of the InvestingPro Tips, which notes Salesforce's "impressive gross profit margins."
Additionally, Salesforce's revenue growth remains solid at 10.26% over the same period, with the company generating $36.47 billion in revenue. This robust performance supports the analyst's optimistic outlook on the company's growth prospects.
InvestingPro Tips also indicate that Salesforce is "trading at a low P/E ratio relative to near-term earnings growth," with a PEG ratio of 0.21. This suggests that the stock may be undervalued relative to its growth potential, supporting Scotiabank's view that the current valuation doesn't fully reflect the company's prospects.
For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for Salesforce, providing deeper insights into the company's financial health and market position.
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