The recession has not changed the Salesforce.com (NYSE: CRM) shareholder value proposition: namely, that delivery of software on demand requires a lower up-front investment and offers increased vendor accountability, with flexible subscription pricing, among other benefits. What the recession has changed is the rate of sales growth for CRM, which is expected to slow to the 15-18% range in FY2009. In short, CRM's customers have slowed software implementations, due to the prolonged economic contraction. The First Call FY2009/FY2010 EPS estimates for CRM are 60 cents to 79 cents.
That said, CRM's leadership position and scalability hold the promise of much better days ahead for the company, once U.S. economic growth resumes. Institutional investors recognize this, and once it became clear that the financial crisis' acute danger period ended in early spring, they began to add to their CRM positions, taking shares up to the $40-range, from about $25. And with the stock performing well from a technical standpoint in the last three months, the risk/return is tipped in favor of a Buy.
Stock Analysis: Salesforce.com is a moderate-risk stock. Consider buying a 25% position in CRM now then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your CRM position before October 2009. Sell/Stop Loss if you were to buy shares in this company: $17.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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