Salesforce's strong results are impressive given activist pressure, Wall Street analysts say

Published Thu, Mar 2 20237:34 AM EST

Salesforce 's strong earnings were impressive, as it works toward improving profitability in the midst of ongoing activist pressure at the firm, according to Wall Street analysts. The cloud stock surged 15% in premarket trading Thursday after Salesforce beat profit and sales expectations . The company also issued a better forecast than Wall Street was expecting. The results help Salesforce CEO Marc Benioff fend off pressure from activist investors such as Third Point and Elliott Management that have leaned on the firm. Morgan Stanley's Keith Weiss maintained an overweight rating and raised his price target slightly to $240 from $236, saying the firm is "significantly turning the dials on the core activist initiatives" as it improves profitability. The new price target suggests shares can jump 43% from Wednesday's closing price of $167.35. "With Q4 fundamentals well exceeding consensus and a FY24 guide targeting growth (~10%) & op margins (~27%) well ahead investor expectations, Salesforce's pursuit of profitable growth gains significant momentum," Weiss wrote in a note. CRM 1D mountain Salesforce shares 1-day Bank of America's Brad Sills was particularly bullish on Salesforce, reiterating a buy rating on the stock, and calling it both a top pick and emerging quality "GARP" stock. GARP is short for growth at a reasonable price, a strategy that bridges attributes from value and growth investing. His $235 price objective, raised from $200, means shares can surge 40% from Wednesday's close. "While the Mulesoft acceleration is impressive, we are also encouraged by the core Sales and Service cloud growth holding in the mid teens level on a cc basis, suggesting continued strength and pull through from more strategic industry cloud and CDP deals," Sills wrote. JPMorgan's Mark Murphy also reiterated an overweight rating on the stock, and raised his price target to $230 from $200 — implying about 37% upside. While Murphy said the outperformance in the quarter had more to do with early renewals than new customer adds to the platform, he said he found the focus on profitability is encouraging. "As we have outlined numerous times, we continue to see the valuation framework for Salesforce shifting to FCF/share, and view management's focus toward a much more aggressive profitability glidepath over the long-term highly favorably," Murphy said to clients Thursday. Meanwhile, Citi's Tyler Radke called the results impressive" especially against recent negative headlines swirling Salesforce. Nevertheless, he maintained a neutral rating on the stock, with a $182 price target implying just 8% upside. "While nearly all reported and guided metric were well above our more bearish estimates, we also think it likely cleared some of the most bullish expectations heading into the print," Radke wrote Wednesday. "We expect stock to trade up significantly as growth seems to be holding up much better while operating margins are inflecting, driving improved shareholder value." On the other hand, AllianceBernstein's Mark Moerdler had an underperform rating on Salesforce, and a $145 price target representing 13% downside for the stock. He said the cloud firm has a "difficult transition" ahead of it as it transitions to a margin story from a growth story. "This is a very difficult transition and is already having an impact on their employee which will likely translate into additional impacts on the business. Given the mix of growth and margins the stock is overpriced especially when considering the risks of further deceleration vs. the rewards of peer level margins which will take years," Moerdler wrote. On average, analysts have a buy rating on the stock, according to consensus estimates from Refinitiv. —CNBC's Michael Bloom contributed to this report.