Jefferies Increases Price Target for Salesforce Inc

Investing.com — Jefferies has raised its price target for Salesforce Inc (NYSE:CRM) following strong quarterly results, but raised concerns over slowing profit margin improvements and weaker growth in recently acquired businesses.

Salesforce's revenue increased by 8.3% in the third quarter, surpassing analysts' expectations of 7.2%. Subscription sales saw a rise of 9.1%, driven by strong demand for its core sales and service cloud products.

Jefferies has increased Salesforce Inc's price target to $425 from $400, while sustaining a “Buy” rating.

Following the announcement of results, company shares surged more than 11% to $366.30 in extended trading on Tuesday.

While Salesforce's operating margin of 33.1% exceeded expectations, Jefferies pointed out a slowdown in improvement. Margins grew by 1.9 percentage points compared to an average increase of nearly 3 percentage points in recent quarters. Jefferies sees potential for Salesforce to further expand its profit margins, as peers in the software industry typically operate with margins around 40%.

The brokerage highlighted weaker performance from Salesforce's acquisitions. Growth at MuleSoft dropped to 1% from 13% in the prior quarter, while Tableau and Slack experienced slower growth rates of 5% and 8%, respectively.

On a brighter note, Salesforce's new Agentforce platform showed early potential, closing 200 deals in its first week, according to Jefferies analysts. However, they do not anticipate significant near-term growth impact from Agentforce.

Since the Dreamforce event earlier this year, Salesforce’s stock has risen over 40%, reflecting optimism about its future. Even with this increase, Jefferies believes the stock is still undervalued, trading at a discount compared to competitors. The brokerage remains confident in Salesforce’s capacity to grow its revenue and profit margins.