Salesforce’s Hidden Strengths Could Fuel a Powerful Rebound

Key Points

• Salesforce.com had a solid quarter, but shares fell due to tepid guidance; guidance called for growth and wider margin. 
• Analysts are trimming their targets to align with the consensus forecast, which forecasts a 20% upside from February lows. 
• Cash flow and capital return, including significant share repurchases, will help drive market action in 2025. 

Salesforce’s NYSE: CRM stock price can rebound to new highs in 2025 because its growth trajectory is solid and its valuation is low. The price tag seems fair at roughly 28x the 2026 outlook, but this fails to price in the growth expected by 2030. The company is forecasted to sustain a low-double-digit earnings growth pace that puts the value closer to 18x by 2030, and forecasts are likely low.

While the Q4 results were tepid relative to the analysts' revenue forecasts, the margin was much better than expected, driving leveraged growth, bottom-line outperformance, and an improved outlook for future profitability. 

Critical details from Salesforce’s Q4 and 2024 report include strength in the new Data Cloud and Agentforce segments. Strength was driven by growth in large clients and cross-selling, with the 10 most significant wins being signed on for both services.

The takeaway is that businesses are leaning more heavily on data-driven insight and AI automation, the two things at which Salesforce excels. The advantage Salesforce gives to its clients is the ability to leverage data-driven insight and apply it using real-time, comprehensive customer information to deliver automated, personalized service across networks. 

Salesforce Falls on Tepid Guidance: Analyst Says Guidance Likely Cautious

Salesforce had a mixed quarter and issued tepid guidance, but the news is not bad. The company grew revenue by 7.5% to $9.99 billion and missed the consensus by only $50 million. The growth was driven by subscription and support revenue stream, with strength in both operating platforms. More importantly, the company widened its margin and provided leveraged bottom-line growth, outperforming MarketBeat’s consensus despite the tepid top-line performance. Operating cash flow grew by 28% and free cash flow by 31% and is expected to remain solid in 2025. 

The guidance is tepid relative to the consensus at the time of the release but no less strong. The company forecasts another year of 7% growth, a decent performance for a maturing tech company, and it tends to outperform its estimates.

Adjusted operating margin is expected to widen, which is no reason to sell the stock, and operating cash flow should grow by 10% to 11% so that financial health will be sustained along with the capital return outlook.

The capital return isn’t robust, but the low payout ratio and net yield, including buybacks, are offset by a robust outlook for distribution growth. The company’s cash-flow positive business, earnings growth trajectory, and ultra-low 15% dividend distribution payout ratio have it set up to sustain annual distribution increases indefinitely at a higher-than-S&P 500 average.

Repurchases are more robust and likely to be sustained at the current levels, sufficient to reduce the count by roughly 1% in F2025. 

Analysts Trim Targets to Align With Consensus: 20% Upside Forecast for 2025

The analysts’ response to Salesforce’s guidance is mixed, resulting in numerous price target reductions. However, the reductions are narrowly centered on the consensus target, which forecasts a 20% upside for this stock.

The takeaway from the chatter is that Salesforce’s AI strategy remains on track despite what is widely seen as cautious guidance. Wedbush analyst Dan Ives cautions that Agentforce monetization is in the early stages, and the company is wise with its prudent approach to scaling.  

The price action in Salesforce gapped lower after the 2025 guidance but has likely hit its bottom. The market rebounded from the early lows to form a bullish candle, showing buyers overtaking sellers with prices at such low levels. There is a risk that resistance will cap gains near $212, but if this market can get above it, then a move to retest the all-time highs is likely. If not, CRM shares could remain range-bound near current levels until later in the year.