Salesforce.com (CRM): Slowdown Worries Ease Ahead of Earnings

While the bulk of S&P 500 companies have already unveiled earnings, there are still several noteworthy components of the broad-market index left to report. Among those on this week's earnings calendar are cloud company Salesforce.com (CRM, $207.08), discount retailer Dollar Tree (DLTR, $139.96) and chipmaker Broadcom (AVGO, $585.02).

"The numbers this earnings season have been great even without considering that the bar has been raised consistently throughout the pandemic," says Jeff Buchbinder, equity strategist for independent broker-dealer LPL Financial. "S&P 500 earnings per share are tracking to a 31% year-over-year increase, roughly 10 percentage points above the consensus estimate when earnings season began."

This will likely fall short of the 12 percentage points of upside S&P 500 companies posted in the third quarter, Buchbinder adds. Still, it's well above the long-term average and is pretty impressive considering the pandemic-related challenges that hit during Q4.

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If that 31% is the final number, "it will mark the fourth straight quarter of earnings growth above 30% for the index," says John Butters, senior earnings analyst at FactSet Research Systems.

According to Butters, the last time the S&P 500 index reported four consecutive quarters of earnings growth above 30% was in the final quarter of 2009 through the third quarter of 2010.

This time around, the "unusually high growth rate is due to a combination of higher earnings in Q4 2021 and an easier comparison to lower earnings in Q4 2020 due to the negative impact of COVID-19 on a number of industries," he adds.

Analyst: Salesforce.com Demand Remains "Healthy"

Salesforce.com is one of the last remaining Dow Jones stocks left to report its quarterly results. The enterprise software solutions firm will unveil its fourth-quarter results after the March 1 close.

In the months that have passed since CRM's late-November report (in which the company reported top- and bottom-line beats, but gave lower-than-expected Q4 earnings guidance), there has been some debate about a potential slowdown in digital transformation spending by global firms, says Stifel analyst J. Parker Lane (Buy).

But in recent weeks, it seems those concerns have dissipated, with the Salesforce partners Lane spoke to "all striking an optimistic tone around the growth of their Salesforce practices in 2022 and beyond."

This optimism is echoed by Oppenheimer analyst Brian Schwartz, who has an Outperform (Buy) rating on CRM. "Takeaways from recent field checks and enterprise CIO surveys reveal good business activity and healthy overall demand for Salesforce in the fourth quarter and a strong pipeline in fiscal 2023," he writes in a note.

However, Schwartz warns of "cloudy parts" in the CRM story. Among them is the company's inclusion of MuleSoft, a systems integration firm that was acquired by Salesforce for $6.5 billion in 2018, which the analyst calls "a work in progress."

For CRM's fourth quarter, analysts, on average, expect earnings to arrive at 75 cents per share, a 27.9% year-over-year (YoY) decline. Revenue, meanwhile, is forecast to land at $7.2 billion, up 24.4% from the year-ago period.

Dollar Tree's Price Hike in Focus Ahead of Q4 Earnings

Like many other consumer staples stocks, Dollar Tree has held up well during the recent market turbulence. Shares of the discount retailer – which has been a frequent target of activist investors – are up more than 5% in the past month, compared to a roughly 1.2% drop for the broader S&P 500.

Can DLTR's fourth-quarter earnings report – due out ahead of the March 2 open – keep the wind at the stock's back?

"We think DLTR's shares are compelling," writes UBS Research analyst Michael Lasser (Buy). "The market has not fully reflected the benefit of DLTR's pricing actions in the stock."

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Lasser's referring to the company's announcement in late November that it was hiking prices on the bulk of its inventory to $1.25 from $1.00, which he believes "should provide meaningful lift."

And even if the shift in strategy doesn't benefit sales, the retailer should still see a notable expansion in gross merchandise. Specifically, the analyst expects merchandise and supply-chain costs to remain stable.

Consensus estimates among Wall Street pros for Dollar Tree's Q4 are for earnings per share (EPS) of $1.77 (-16.9% YoY) and revenue of $7.1 billion, a 5.2% improvement from the year prior.

Strong Growth Expected in Broadcom's Earnings Report

Broadcom will unveil its fiscal first-quarter earnings report after Thursday's close.

Oppenheimer analyst Rick Schafer sees an "upside setup" relative to consensus estimates due to core networking, which is expected to be 30% higher than it was in the year-ago period.

"Management has been exemplary in a tight supply environment," Schafer writes. And while lead times remain stretched at 50 weeks, "We believe AVGO has nearly ~100% backlog coverage for 2022. We see upside potential as supply eases through the year."

As for the semiconductor stock's fiscal first-quarter, Schafer expects the tech name to report earnings of $8.15 per share and revenue of $7.6 billion. For the sake of comparison, consensus estimates among analysts are for EPS of $8.08 (+22.2% YoY) and revenue of $7.6 billion, a 14.3% improvement over last year's number.