Bank of America’s top cloud computing stock pick may come as a surprise to investors. Analyst Kash Rangan says investors should be taking a closer look at top large-cap cloud growth stock pick Salesforce.com (NYSE: CRM).
Rangan says Salesforce is a key player in the long-term digital transformation of the business world, and CRM stock is even included on Bank of America’s US1 list of top American stocks.
“CRM is a consensus long, but we expect continued stock out-performance on both upside to estimates and a re-rating on potential catalysts,” Rangan says.
Rangan says the recent promotion of Keith Block to co-CEO is a positive for the stock and will not negatively impact the vision or execution of co-CEO Marc Benioff.
In addition, Rangan says Salesforce’s $6.5 billion buyout of MuleSoft back in March helps set Salesforce up to grow earnings per share to $9 by fiscal 2023. Rangan says a combined Salesforce/MuleSoft should also be able to reach $10 per share in free cash flow and $28 billion in revenues by that time as well.
In the near term, Salesforce has a handful of potential catalysts to continue its positive momentum. Rangan says MuleSoft integration and artificial intelligence features will allow Salesforce to upsell to its current customers, while the digital transformation provide Salesforce the opportunity to continue to lure business away from the competition.
“Our thesis is that CRM is a long-term market share winner with inflecting margins, benefiting from the structural shift to Cloud,” Rangan says.
CFRA analyst Scott Kessler appreciates Salesforce’s potential but is also well aware of the heavy-hitting competition.
“We view the software-as-a-service/cloud software category as showing much healthier growth than software or IT more generally but also note it is crowded and competitive,” Kessler says.
At the same time, Kessler says Salesforce is differentiating its services and gaining market share in key areas.
“CRM’s pioneering position has helped make it a key platform provider, attracting considerable enterprise interest and activity,” he says.
Bank of America has…
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