Friday, October 19, 2012

CRM: Raymond James Ups To Buy; Don’t Mind Deferreds

Raymond James’s Terry Tillman this morning raised his rating on shares of Salesforce.com (CRM) to Outperform from Market Perform, with a $135 price target. writing that the valuation of the shares offers a better trade-off between risk and reward following the sharp decline in the shares after the company’s fiscal Q3 report last Thursday offered a disappointing billings result for the quarter.

Although billings missed consensus estimates, Tillman notes that the company’s fiscal 2012 revenue forecast was above consensus. That should compel growth-style investors, he thinks:

Initial FY13 revenue growth guidance above consensus supports high 20%/30% top-line growth. We believe a market that favors growth over profits could look favorably upon a story growing at 30%-plus on a $3 billion revenue base with upside opportunities abound.

Don’t sweat the deferred revenue, a component of billings, argues Tillman: the real leading indicator is the record number of large deals signed in the quarter, which will promote the company’s off-balance-sheet backlog, he thinks:

For reference, unbilled revenue was ~$1.5 billion at the end of 4Q11, representing an increase of 50% y/y. We believe trends in revenue outlook and qualitative bookings commentary will remain paramount, especially if more periodic invoicing (e.g., monthly or 2x/year versus large annual invoice duration) impacts reported deferred revenue.

For another perspective, see my colleague Mark Veverka’s Plugged In column on Salesforce in this week’s Barron’s print magazine.

Salesforce shares today are down $7.23, or 6.4%, at $106.32.

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