Stocks’ Details

Salesforce.com Inc

CRM & IBM Inks a Deal: Salesforce.com Inc (NASDAQ: CRM) is a worldwide leader in CRM (customer relationship management) technology that facilitates companies to enhance their relationships and interaction with customers. Recently, CRM and IBM entered into a partnership deal to incorporate IBM Digital Health Pass with Salesforce Work.com platform. The deal will aid organizations to safely reopen public places and offer individuals with a certifiable and privacy-protecting way to handle and share their immunization and health status led by COVID-19 crisis.

Q3FY21 Key Highlights: During the quarter, the company reported revenues of $5.42 billion, up 20% year over, owing to a robust demand environment as customers are experiencing a major digital transformation. Also, strong adoption of CRM’s cloud-based solutions aided the results. Non-GAAP EPS for the quarter stood at $1.74 per share, up by a whopping 132% year over year. Gross margin came in at 74%, down 100 basis points year over year. The company exited the period with cash and marketable securities worth $9.5 billion. Operating cash inflow for the quarter stood at $339 million.

Financial Summary (Source: Company Reports)

Outlook FY21: The company updated its FY21 revenue guidance to be between $21.10-$21.11 billion, as compared to prior view of 20.7-$20.8 billion. Non-GAAP earnings per share are now expected between $4.62-$4.63, up from the previous range of $3.72-$3.74.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of CRM closed at $227.43 with a market capitalization of ~$208.1 billion as on 18 December 2020. The stock made a 52-week low and high of $115.29 and $284.5, respectively, and is currently trading at the upper band of the range. The stock gave a positive return of 21.65% in the last six months period. Considering the aforesaid facts, we have valued the stock using an EV/Sales multiple based illustrative relative valuation method. For the purpose, we have taken peers like Oracle Corp (NYSE: ORCL), VMware Inc (NYSE: VMW), Microsoft Corp (NASDAQ: MSFT), to name a few, and arrived at a target price with high single-digit upside (in % terms). On the technical analysis front, the stock has a support level of ~$211.2 and a resistance of ~$232.5. Considering the recent partnership deal with IBM, resilient business, strong Q3FY21 results and upgraded outlook, we give a ‘Hold’ recommendation on the stock at the closing price of $227.43, up 0.67% as on 18 December 2020.

Cloudflare, Inc.

NET Releases Cloudflare Pages: Cloudflare, Inc. (NYSE: NET) is a global web infrastructure and web security company engaged in the protection and acceleration of the internet without the addition of hardware/software products or changing a line of costs. Recently, the company unveiled the next-generation website development platform called the Cloudflare Pages, with excellent performance, safety, scalability, and pricing. In another update, NET unveiled Data Localization Suite to offer businesses with tools to address their privacy, compliance needs, and data locality, all over the world.

Q3FY20 Financial Highlights: During the quarter, the company has reported a year over year growth of 54%, which stood at $114.2 million. During the same time span, the company generated a non-GAAP net loss of $5.7 million, compared to $18.5 million in 3QFY19. Net cash flow from operations in 3QFY20 stood at $2.0 million, with a negative free cash flow of $17.9 million. The company exited the period with cash, and cash equivalents, and available-for-sale securities of $1,051.3 million.

3QFY20 Key Highlights (Source: Company Results)

Outlook: For 4QFY20, the company expects total revenue to be in the range of $117.5 to $118.5 million, whereas non-GAAP loss from operations is expected to be in the band of $10 to $9 million. Non-GAAP net loss per share is likely to be between $0.04 to $0.03.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of NET closed at $83.81 with a market capitalization of ~$25.7 billion. The stock made a 52-week low and high of $15.05 and $86.21, respectively, and is currently trading above the average of its 52-week trading range. The stock has delivered a positive return of ~132.8% in the last six months. On the technical analysis front, the stock has a support level of ~$79.5 and a resistance of ~$85.2. Considering the above factors, we have valued the stock using an EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price with a correction of lower double-digit (in % terms). For the purpose, we have taken the peer group - Palo Alto Networks Inc (NYSE: PANW), CrowdStrike Holdings Inc (NASDAQ: CRWD), and Splunk Inc (NASDAQ: SPLK), to name few. Considering the spike in the stock price over the last six-month, valuation and current trading levels, and valuation, we give an “Expensive” rating on the stock at the closing price of $83.81, up by 2.43% on 18 December 2020.

Sunrun Inc.

RUN Enters a Contract With SCE: Sunrun Inc. (NASDAQ: RUN) is engaged in developing, owning, managing, and selling residential solar energy systems. On November 19, 2020, the company entered into a contact with Southern California Edison (SCE), one of the top electric utilities in the United States. The deal will provide cheap, reliable, and clean energy solutions for California’s grid, and will help individuals take control of their energy future. This in turn will boost grid strength and lower power costs.

3QFY20 Key Financial Highlights: During the quarter, the company reported revenues of $209.8 million, down from the year-ago figure of $215.5 million. Revenue from customer agreements and incentives segment stood at $114.5 million, up 19% year over year. However, solar energy systems and product sales revenue decreased 20% on pcp and came in at $95.3 million. Total operating expenses came in at $272.0 million, down marginally 1% on pcp. During 3QFY20, net income came in at $37.4 million, up from the year-ago figure of $28.99 million. The company exited the quarter with a cash balance of $276 million.

3QFY20 Key Highlights (Source: Company Results)

Outlook: The company expects to increase the deployment of Megawatts by more than 10% on a quarterly basis in 4QFY20.  Also, the company expects to improve its net customer margin levels to above $8,000 per leased customer in the coming quarter, owing to the acquisition of Vivint Solar.

Valuation Methodology: P/CF Multiple Based Relative Valuation (Illustrative)

P/CF Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of Run closed at $62.7 with a market capitalization of ~$12.38 billion. The stock made a 52-week low and high of $7.83 and $82.42, respectively, and is currently trading above the average of its 52-week trading range. The stock has delivered a positive return of ~215.2% in the last six months. On the technical analysis front, the stock has a support level of ~$59.5 and resistance of ~$64.5. Considering the above factors, we have valued the stock using a P/CF multiple based illustrative relative valuation method and arrived at a target price with a correction of single-digit (in % terms). For the purpose, we have taken the peer group - SunPower Corp (NASDAQ: SPWR), Solaredge Technologies Inc (NASDAQ: SEDG), and Enphase Energy Inc (NASDAQ: ENPH). Considering the spike in the stock price over last six-month, current trading levels, and valuation, we are of the view that most of the positive factors of the company have been discounted at current trading levels. Hence, we suggest investors to wait for better entry level and give an “Expensive” rating on the stock at the closing price of $62.7, up by 0.63% on 18 December 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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