MORGAN STANLEY: Salesforce poised to clear 'low bar' in Tuesday's earnings, with 37% stock gains by 2020 likely

Melia Robinson/Business Insider

Salesforce CEO Marc Benioff doesn't have much to worry about going into first quarter earnings.

• Salesforce is set to report its first quarter earnings on Tuesday, but Wall Street isn't sweating it.
• Instead, analysts are curious how Salesforce will be impacted in the long-run, thanks to its $6.8 billion MuleSoft acquisition, which officially closed May 2.
• Morgan Stanley has high hopes, and sees a good chance of Salesforce meeting its $22 billion revenue goal by 2022.
• Best case scenario: Morgan Stanley thinks Salesforce could see stock gains up 37% by next year.

Wall Street has high expectations for Salesforce going into its fiscal Q1 2019 earnings on Tuesday. But the real question for many is how the $93.7 billion company will fare in the long-term, especially since its $6.8 billion acquisition of MuleSoft closed on May 2.

CEO Marc Benioff has set a bar high for the company with plans to reach $21 billion to $23 billion in revenue by 2022. That's 73% growth from the $12.7 billion in revenue Wall Street expects to see from Salesforce this year.

But Morgan Stanley thinks Salesforce's is perfectly on track to meet - if not exceed - its goal, thanks in part to MuleSoft.

While some on Wall Street have expressed concerns that the MuleSoft acquisition will put pressure on Salesforce's margins, Morgan Stanley's Keith Weiss doesn't see this as an issue.

In a note published Friday, he estimated that Salesforce fiscal 2019 margins will show "incremental improvement" over the year before, and that the company is "on track" to return to consistent growth down the road.

Over all, Weiss sees the MuleSoft acquisition as a "bolster" to Salesforce's revenue goal. MuleSoft is expected to hit $1 billion in revenue by calendar year 2021 - which will be critical in helping Salesforce exceed $22 billion.

All together, Weiss believes Salesforce has an "increased probability" of reaching Morgan Stanley's bullish estimate for the company. In the best case scenario, Salesforce can grow its stock price to $177 - a 37% premium on today's price - by May 2019.

But to get there, Weiss said Salesforce will need to maintain billings growth over 20% and successfully integrate MuleSoft while growing over all operating margins to 30% over time.

When it comes to Tuesday's earnings, however, the stakes are slightly lower. Weiss said Salesforce is well positioned "to clear a low Q1 bar."

Wall Street is looking for $2.94 billion in revenue (GAAP) for the quarter and earnings per share (adjusted) of $0.26, along with billings growth of 10.9%.

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