Shares of software vendor Salesforce.com (CRM) are up $3.45, or 2.4%, at $148.75 after Morgan Stanley’s Adam Holt this morning raised his rating on the stock to Overweight from Equal Weight, with a $200 price target, writing that workloads on “cloud” computing facilities, such as the company’s “Force.com” online platform, is going to rise 50% per annum, compounded, through the next three years, based on Morgan Stanley’s survey of 300 IT executives.
Usage of cloud-based applications will increase from 51% of companies today to 80%, Holt says the data show.
Salesforce should be the biggest beneficiary, Holt thinks, and he believes consensus estimates for the company don’t reflect the rate of growth, instead modeling something like 20% cloud industry growth.
Based on an expectation Salesforce will garner an increasing share of the “software-as-a-service” pie, not to mention “platform-as-a-service” business, Holt raised his estimates for the company for fiscal 2013 and 2014. He sees $2.17 billion in revenue for this year, the same as his prior estimate, but for 2013 he sees revenue of $2.57 billion, from a prior estimate of $2.53 billion, and for 2014, he sees revenue of $3.23 billion, up from $3.082 billion previously.
That should produce non-GAAP EPS next year of $1.90, rather than the $1.80 he’d previously expected, and EPS of $2.43 in 2014, rather than the $2.31 he’d previously modeled. Holt models Salesforce earning $1.32 this year.
Holt’s $200 target is based on a 47 multiple of his projected free cash flow per share of $4.11 next year, which he suggests is a 1.3 times growth multiple.
Article courtesy of Tech Trader Daily