Jubak Picks Member Salesforce Beats On Earnings, Raises Guidance For 2019 And 2020

Salesforce (CRM) started today to the upside based on last night’s earnings beat of 11 cents a share. Salesforce shares were up 4.57% as of noon New York time today.

And then came the market-wide bounce after Fed chair Jerome Powell’s speech suggesting that the Federal Reserve was thinking about raising interest rates less aggressively in 2019. Shares of Salesforce closed higher by 10.27% for the day.

Salesforce is a member of my Jubak Picks 12-18 month portfolio and is one of my recent 5 picks for the bounce. (To see my posts on 5 picks for the bounce and 5 picks for the “bigger bounce,” you’ll have to subscribe to my JubakAM.com site.)

Anyway…

Salesforce reported third quarter earnings of 61 cents a share, substantially above the Wall Street consensus of 50 cents a share. Revenue climbed 25.6% year over year to $3.39 billion against the Wall Street projection of $3.37 billion.

The company issued somewhat disappointing guidance for the fourth quarter–earnings per share of 54 cents to 55 cents versus Wall Street projections of 57 cents. But the guidance for revenue in the quarter was ahead of the Wall Street consensus of $3.53 billion at $3.551 billion to $3.561 billion.

Salesforce took any sting out of fourth quarter guidance by raising earnings estimates for 2019 to $2.60 to $2.61 a share from the earlier $2.50 to $2.52 a share.

For 2020 Salesforce projected revenue growth of 20% to 21% to $15.9 billion to $16 billion versus the Wall Street estimate of $15.85 billion.

Salesforce is riding two trends in my opinion. First, it is disrupting the traditional software licensing system by moving to a cloud-based subscription model (along with Microsoft (MSFTWealth Strength IndexAAPL is Extremely Up and trending Up) and Adobe Systems (ADBEWealth Strength IndexAAPL is Extremely Up and trending Up).) Second, the increasing amount of information that consumer companies collect on customers is leading to increased sales of marketing and sales management software to analyze that data and turn it into targeted selling activities that include, but certainly don’t end with, digital advertising.

The stock closed at $140.64 today, Wednesday November 28. That’s a 2.48% gain from my November 1 addition of the shares of the Jubak Picks Portfolio. I’m keeping my target price at $185.