Goldman Sachs sees Salesforce rallying more than 50% after strong earnings

Published Thu, Aug 31 20237:16 AM EDTUpdated Thu, Aug 31 202312:56 PM EDT

Salesforce 's latest earnings have Goldman Sachs even more excited for the tech stock's future. Shares advanced 5.3% before the bell Thursday. A day earlier, Salesforce reported fiscal second-quarter earnings and revenue that beat expectations , while also issuing better-than-forecast guidance for the current quarter. Goldman Sachs analyst Kash Rangan raised his price target on Salesforce by $15 to $340 per share, implying upside of 58.1%. Rangan has a buy rating on the stock. With Salesforce's operating margin exceeding 30% for the first time, it notched a milestone the company previously thought couldn't be seen until the first quarter of fiscal 2025. Rangan said that 30% marker can be sustained as cost savings from the workforce restructuring earlier this year helped balance out reinvestment in artificial intelligence and targeted hiring. Salesforce announced it would lay off about 10% of staff, which equates to more than 7,000 jobs , in January. "We see revenue generated from Gen AI products, price increases and pent-up demand (following a period of restrained spending in the CRM industry) potentially accelerating revenue in CY24 (FY25)," Rangan said in a note to clients Wednesday. "Improved top-line growth may also support LT margin durability." His price target would mark a continuation of this year's rally, with the stock already up more than 62% in 2023. CRM YTD mountain Salesforce, year to date Rangan noted that current revenue performance obligations, which track revenue expected from contracts, may be "more gradual" in reaccelerating. But he did point to stabilizing year-over-year growth in sequential net-new dollars among multiple businesses including sales, service and platform that can signal the top line is stabilizing. This growth can also support the view that revenue growth will hit a low point this year, Rangan said. He also said the company's quarterly report could help catalyze a re-rating. "Overall, we see F2Q24 results easing some investor concern around Salesforce's ability to balance top-line and OM expansion, which can lead the stock to re-rate higher, similar to Microsoft , Adobe , Intuit and Autodesk , whose valuation multiples all re-rated significantly higher after embarking on a similar journey," he said. Rangan wasn't the only Wall Street analyst who reiterated his optimism following the report. In the same vein, Bank of America analyst Brad Sills raised his price target while keeping a buy rating following the "very solid" report. Deutsche Bank analyst Brad Zelnick also reaffirmed his buy rating while raising his price target in a note titled, "Yes, They can invest in AI and deliver margins." Barclays analyst Raimo Lenschow, who similarly kept an overweight rating while upping his expectation for shares, said the company's report fortifies its profitable growth story. "Salesforce delivered strong results, even despite the negative investor sentiment heading into the print," he said. — CNBC's Michael Bloom contributed to this report.