Software company Salesforce, Inc. (CRM - Get Rating) surpassed revenue estimate by $3.41 million for its 2022 third quarter. Moreover, it beat EPS estimates by 14.5%. The company expects its revenue to grow by 17% this year.

In addition, earlier this month, CRM and Walmart Inc. (WMT) announced their partnership as WMT intends to sell more of its technology and services to other companies. This collaboration between the industry giants should boost shoppers’ experience.

Furthermore, amid rapid digitalization across industries, demand for software services is increasing. The software as a service market is expected to grow at a CAGR of 18.5% from 2022 to 2028. Investors’ interest in software stocks is evident from SPDR S&P Software & Services ETF’s (XSW) 8.3% returns over the past three months.

Given the industry’s bright prospects, CRM is expected to witness robust gains in 2023. Wall Street analysts expect the stock to hit $189.25 soon, indicating a potential upside of 26.6%.

The stock has gained 10.2% over the past month and 2.8% over the past three months to close the last trading session at $149.51.

Here is what could shape CRM’s performance in the near term:

Solid Top-line Growth

CRM’s subscription and support revenue came in at $7.23 billion for the third quarter that ended October 31, 2022, up 13.4% year-over-year. Its professional services and other revenue came in at $604 million, up 24.8% year-over-year. Also, its total revenues increased 14.2% year-over-year to $7.84 billion.

In addition, its gross profit came in at $5.75 billion, reflecting an increase of 14.5% year-over-year. Its income from operations came in at $460 million, up 1,110.5% year-over-year.

Favorable Analyst Expectations

Analysts expect CRM’s revenue to increase 16.9% and 10.6% year-over-year to $30.97 billion and $34.25 billion in 2023 and 2024, respectively. Its EPS is expected to increase 3.1% and 16.6% year-over-year to $4.93 and $5.75 in 2023 and 2024, respectively.

Moreover, its EPS is expected to grow by 18.3% per annum for the next five years. In addition, it surpassed EPS estimates in all four trailing quarters.

Robust Profitability

CRM’s trailing-12-month gross profit margin of 72.69% is 46.8% higher than the industry average of 49.53%, while its trailing-12-month levered FCF margin of 30.62% is 308.8% higher than the industry average of 7.49%.

POWR Ratings Reflect Promising Outlook

CRM has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

CRM has an A grade for Growth, consistent with its top-line growth in the latest reported quarter. It has a B grade for Sentiment, in sync with optimistic analyst expectations.

In the 139-stock Software – Application industry, CRM is ranked #20.

Click here for the additional POWR Ratings for CRM (Value, Momentum, Stability, and Quality).

View all the top stocks in the Software – Application industry here.

Bottom Line

CRM reported solid top-line growth in the last reported quarter. Moreover, the stock is trading above its 50-day moving average of $141.92. Also, given its bright growth outlook, I think CRM might be an ideal buy for 2023.

How Does Salesforce, Inc. (CRM) Stack up Against Its Peers?   

While CRM has an overall POWR Rating of B, one might consider looking at its industry peers, Commvault Systems, Inc. (CVLT - Get Rating), Progress Software Corporation (PRGS - Get Rating), and IBEX Limited (IBEX - Get Rating), which have an overall A (Strong Buy) rating.

CRM shares were unchanged in premarket trading Monday. Year-to-date, CRM has gained 12.76%, versus a 4.20% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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