“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, January 28, 2019

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

ALSO

"Trading Capital Management"



Option Trade – salesforce.com, inc. (NYSE:CRM) Calls

Wednesday, January 30, 2019

** OPTION TRADE: Buy the CRM MAR 15 2019 150.000 CALL at approximately $5.10. Place a pre-determined sell at $11.20.

Also include a protective stop loss of $2.00.

Cloud-based customer relationship management company salesforce.com, inc. (NYSE: CRM) has been consistently growing its revenue well into the double digits since it went public in 2004. Over that period of time, the stock has returned an astonishing 3,300%. Though the company now has a market cap of $113 billion, there's still plenty of room for further growth.

That's because the software provider is still growing at a better-than-20%-per-year rate. Through in-house development and strategic acquisition of smaller peers, Salesforce is still very much in growth mode. During the third-quarter 2018 earnings report, the co-CEO and founder of enterprise software company Salesforce, Marc Benioff, said he sees years of expansion ahead as the economy -- especially the digital economy -- continues to evolve and changes how businesses operate. That plays right into the hand of Salesforce, one of the pioneers of cloud-based services and customer-centric, data-driven software.

And, software investors will enjoy another year of solid returns, according to Wells Fargo Securities software analyst Philip Winslow.

"We believe that organizations view software as a revenue-driving asset that is essential to retaining customers, making the sector less susceptible to volatile changes in IT spending," Winslow wrote. "We believe that the software sector offers an attractive valuation profile relative to the sector's outlook for sustained (longer duration) profitability and growth (higher growth)."

The analyst noted how software once created can be sold an unlimited number of times at nearly no incremental cost. He also cited how software stocks have outperformed the S&P 500 80% of the years since 2009 by 14 percent points on average. It also beat the market significantly last year.

Winslow estimates the software industry will grow at 8% annually from 2018 to 2022, which is more than double the rate of overall technology spending.

And, the analyst has a $175 price target for Salesforce.com stock, representing about 17% upside to the current price.

"We expect Salesforce to benefit from adoption trends in artificial intelligence, cloud, social, and mobile, positioning the company as the leading customer-centric, integrated front-office suite because of its ability to provide an end-to-end solution across [customer-relationship management]," he wrote.

Salesforce.com had gained 7.56% over the past month, outpacing the Computer and Technology sector's gain of 5.57% and the S&P 500's gain of 6.55% in that time.

About salesforce.com…..

Salesforce is a titan in the cloud software market. The $110 billion behemoth is the undisputed leader in customer relationship management software, with a market share that's more than that of its three closest rivals combined.

Salesforce has long been at the forefront of the big-data revolution. The company long ago recognized the capacity of artificial intelligence (AI) to help businesses harvest actionable insights from all forms of data. Salesforce has used acquisitions to bolster its AI arsenal, and it now offers some of the most advanced AI solutions among enterprise software providers.

"Customers, no matter what industry, no matter what geography, no matter what size company, want insights," said co-CEO Keith Block on Salesforce's second-quarter earnings call . Salesforce has positioned itself as perhaps the premier supplier of this information; the company delivers more than 4 billion AI-powered predictions to its customers every day. In turn, Salesforce's AI leadership is helping it gain share in an enterprise application-software market that's projected to grow to more than $275 billion by 2022.

Past Performance…..

salesforce.com last issued its quarterly earnings data on Tuesday, November 27th. The CRM provider reported $0.61 EPS for the quarter, beating the Zacks’ consensus estimate of $0.50 by $0.11.

The business had revenue of $3.39 billion for the quarter, compared to analyst estimates of $3.37 billion. salesforce.com had a return on equity of 8.06% and a net margin of 6.51%. The firm’s revenue for the quarter was up 25.6% on a year-over-year basis. During the same quarter in the prior year, the firm posted $0.39 EPS. Research analysts expect that salesforce.com, inc. will post 1.32 earnings per share for the current year.

Future Earnings…..

Salesforce.com will report its next earnings on February 27, 2019. CRM is projected to report earnings of $0.56 per share, which would represent year-over-year growth of 60%. Meanwhile, the latest consensus estimate is calling for revenue of $3.56 billion, up 24.92% from the prior-year quarter.

CRM's full-year Consensus Estimates are calling for earnings of $2.61 per share and revenue of $13.24 billion. These results would represent year-over-year changes of +93.33% and +26.3%, respectively.

Influencing Factors…..

Of all Salesforce's acquisitions, MuleSoft may be the most important. Salesforce paid $6.5 billion in 2018 to acquire MuleSoft's best-in-class data integration technology, which helps companies bring together massive amounts of data from many different sources. Less than a year later, it's already beginning to look like MuleSoft may have been an incredible bargain.

MuleSoft is helping Salesforce win new business at a rapid clip during the company's Q2 call: "As more and more companies connect everything and everyone, they're realizing that integration is vital to their success and to their digital transformation, and now they're turning to Salesforce MuleSoft, the No. 1 integration cloud, to do it."

Together with Salesforce's highly regarded AI capabilities, MuleSoft's data integration solutions make the combined company extremely well-positioned to profit from the big-data boom.

CRM is technically ready to make a new high. In the daily chart prices are trading above the rising 50-day moving average line and the long-time bullish 200-day line. The price strength in January pushed CRM above its early December peak to refresh the uptrend.

The daily On-Balance-Volume (OBV) line is leading the way to a new price high as this indicator has already made a new high. The trend-following Moving Average Convergence Divergence (MACD) oscillator crossed the zero line earlier this month for an outright go signal.

The weekly chart of CRM shows the strong rise of the last three years. The price action of the last few months does not look like a top pattern but rather just a correction in a longer-term bull. Prices are above the rising 40-week moving average line.

Moving Forward…..

The San Francisco-based software maker, which now employs more than 1,000 people in Ireland, laid out its Irish expansion plans Friday in Dublin. The company, in a joint announcement with Irish Prime Minister Leo Varadkar, unveiled a plan to build a “Salesforce Tower” in the city.

The software maker’s planned hiring spree in Ireland comes amid a broader push to ensure that the company’s strong growth continues. International expansion has been paramount to Salesforce, which generates most of its revenue in the U.S. The attempt to diversify from its home market comes as the company’s signature cloud software for sales teams is seeing slowing growth because of its saturation in the market.

Salesforce also pledged in June to spend $2.5 billion to spur sales in the U.K., its largest European market, over the next five years. The funds will go to hire new employees, build another U.K. data center and expand office space. The leader in customer-relations management software said in April that it would invest $2.2 billion in its French business over the next five years.

Analysts Opinions

salesforce.com was upgraded by research analysts at ValuEngine from a “hold” rating to a “buy” rating in a report issued on Wednesday, January 2nd.

Also, equities research analysts at Stephens started coverage on shares of salesforce.com in a research report issued on Wednesday, January 16th. The brokerage set an “overweight” rating and a $183.00 price target on the CRM provider’s stock. Stephens’ price target indicates a potential upside of 22.21%.

Several equities analysts have recently commented on the company…..

  • Goldman Sachs Group reiterated a “buy” rating and issued a $168.00 price target on shares of salesforce.com in a report on Wednesday, November 28th.
  • Sanford C. Bernstein reiterated a “neutral” rating and issued a $149.00 price target on shares of salesforce.com in a report on Wednesday, November 28th.
  • Credit Suisse Group reiterated a “buy” rating and issued a $175.00 price target on shares of salesforce.com in a report on Wednesday, November 28th.
  • Nomura restated a “buy” rating on shares of salesforce.com in a research note on Wednesday, December 5th.
  • Zacks Investment Research raised shares of salesforce.com from a “hold” rating to a “buy” rating and set a $156.00 target price on the stock in a research note on Friday, November 30th.
  • Atlantic Securities assumed coverage on shares of salesforce.com in a research note on Wednesday, January 9th. They set an “overweight” rating and a $179.00 target price on the stock.
  • Finally, Wedbush restated an “outperform” rating and set a $166.00 price objective on shares of salesforce.com in a research note on Monday, January 7th.

Three investment analysts have rated the stock with a hold rating, thirty-seven have given a buy rating and one has given a strong buy rating to the company. salesforce.com presently has an average rating of “Buy” and an average price target of $172.38.

Summary

salesforce.com has a current ratio of 0.86, a quick ratio of 0.86 and a debt-to-equity ratio of 0.22. The stock has a market cap of $114.55 billion, a PE ratio of 322.62, and a P/E/G ratio of 4.71 and a beta of 1.28. salesforce.com, inc. has a 52 week low of $102.37 and a 52 week high of $161.19.