Salesforce Inc. (CRM) is set to unveil its latest earnings report this week, following a period of tremendous growth and strategic financial moves. The company, known for its robust stock buyback program, recently expanded its shareholder rewards by incorporating dividends into its repertoire. Furthermore, last quarter saw management offer bullish guidance on operating cash flow for the fiscal year, hinting at promising financial health ahead.
Despite these positive developments, CRM stock continues to trade at a seemingly discounted price. Priced at $272.29 as of the most recent close, the stock stands merely 1.3% above its 3-month low recorded on May 1 at $268.69 per share.
Delving into the intricacies of its financials, the focus shifts towards Salesforce’s empowering statistics, notably its outlook on free cash flow (FCF) and potential market valuations.
Diving Into Free Cash Flow Analysis
In the last quarter, ending Jan. 31, 2024, Salesforce demonstrated a remarkable 11% yearly revenue growth, generating $9.29 billion in sales. Notably, the company’s operational prowess shone through as it produced $3.4 billion in operating cash flow, translating into $3.26 billion in FCF post a modest capital expenditure.
The pivotal FCF margin stood at an impressive 35% in Q4, heralding a buoyant financial performance. Even more encouragingly, Salesforce’s guidance alluded to a projected 21% to 24% increment in operating cash flow for the fiscal year wrapping up in Jan. 2025.
Looking ahead, prospective FCF estimates paint an even rosier picture. Analysts foresee a sales range between $38 billion and $42 billion over the coming two fiscal years, averaging at $40 billion. Applying the robust Q4 FCF margin to this estimated figure yields a potential FCF of $14 billion — a significant leap from the current projections.
Evaluating Price Targets Based on FCF
Considering the current FCF yield of 4.6%, derived by dividing the anticipated $12.1 billion FCF for the year by the $264.5 billion market cap, the forecasted FCF of $13.6 billion equates to a prospective market cap slightly surpassing $300 billion — marking a 14% ascent from the present valuation.
Moreover, employing a 4.0% FCF yield metric suggests a market value of $340 billion, presenting a notable 28.5% surge. Should Salesforce actualize a $14 billion FCF figure next year, the projected market cap could soar to $350 billion, 32.3% above the current evaluation.
Collectively, these estimates converge to a promising price target of 23% higher, with an average valuation of $335 per share — a tad below the figures projected by sell-side analysts.
Insights from Analysts’ Price Targets
Market insights from various platforms align with the bullish sentiment. Yahoo! Finance, Barchart.com, and AnaChart.com underline an undervalued stance on CRM stock, with average price targets hovering around $336.10, $327.21, and $303.43 per share, respectively.
AnaChart’s detailed analyst reports showcase a consensus among experts that the stock is currently priced lower than its intrinsic value. Notably, top-performing analysts have consistently set higher price targets, bolstering confidence in the stock’s long-term potential.
In a nutshell, the prevailing market sentiment towards Salesforce suggests a compelling narrative — one where its true value far exceeds its current market price, making it an intriguing prospect for astute investors.
