Salesforce.com Started with Buy, $77 Price Target

Kaufman Brothers is hot for the stock of Salesforce.com (CRM-NYSE).

They are assuming the valuation holds up, and with financials in the tank, and energy bulls beginning to second guess themselve, perhaps the seasonal technology move has started early.

This stock is a must own for many growth investors, although Kaufman could have picked up coverage in July 2006 when I got chopped up trying to trade it from the long side.

* We are initiating coverage of salesforce.com shares with a BUY rating and a 12-month price target of $77, based on an assumed multiple of 45x our preliminary fiscal 2011 (calendar 2010) non-GAAP EPS estimate of $1.70.

* salesforce.com reports after the close today, August 20. We spent the last several months meeting with or hosting calls with major implementation partners, speaking to existing and prospective customers at conferences and hosting calls with individuals working on large implementation projects. The feedback from these sources was almost uniformly positive, with both demand and the company’s execution appearing strong. As a result, we are forecasting an in-line or better quarter, with July quarter revenues estimated at $262 million, GAAP EPS at $0.08, non-GAAP EPS at $0.18 and deferred revenues of $495 million.

* Over the medium term, we do not believe that the core on-demand CRM application market is anywhere close to full penetration; we don’t believe that salesforce.com is meaningfully threatened by competing products from Oracle and others and we see the value in the platform strategy. The Street revenue growth rate estimate of 31% for fiscal 2010 also seems very reasonable. Our primary near-term concerns are the risk of lengthening sales cycles in the large customer segment and the potential for the recent dollar appreciation to skim off some of the revenue upside in the coming quarters. We estimate fiscal 2009 revenues of $1.474 billion (up 35%), GAAP EPS of $0.67 and non-GAAP EPS of $1.23.

* A valuation multiple of 5.3x fiscal 2010 (effectively calendar 2009) revenues, 56x non-GAAP EPS and 29x free cash flow is expensive to be sure, but, in our view, not outrageous given the tremendous growth prospects, margin leverage and overall fundamentals.

* We have also initiated coverage of Concur (CNQR) shares with a HOLD rating. Concur is the dominant provider of on-demand software to automate the travel and expense reporting function at companies large and small.
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Nice uptrend and support at 200-day MA if that is your game...

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