As part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the stocks that is not currently on our screens, Salesforce Inc ().
ProfileSalesforce, Inc. is an American cloud-based software company headquartered in San Francisco, California. It provides applications focused on sales, customer service, marketing automation, e-commerce, analytics, artificial intelligence, and application development. Founded by former Oracle executive Marc Benioff in March 1999, Salesforce grew quickly, making its initial public offering in 2004. As of September 2022, Salesforce is the 61st largest company in the world by market cap with a value of nearly US$153 billion. It became the world’s largest enterprise software firm in 2022. Salesforce ranked 491st on the 2023 edition of the Fortune 500, making $31.352 billion in revenues. Since 2020, Salesforce has also been a component of the Dow Jones Industrial Average.
Recent PerformanceOver the past twelve months, the share price is up 45.06%.Source: Google FinanceInputs
Forecasted Free Cash Flows (FCFs)
Terminal ValueTerminal Value = FCF * (1 + g) / (r – g) = 268.99 billionPresent Value of Terminal ValuePV of Terminal Value = Terminal Value / (1 + WACC)^5 = 174.82 billionPresent Value of Free Cash FlowsPresent Value of FCFs = ∑ (FCF / (1 + r)^n) = 50.25 billionEnterprise ValueEnterprise Value = Present Value of FCFs + Present Value of Terminal Value = 225.08 billionNet DebtNet Debt = Total Debt – Total Cash = 1.60 billionEquity ValueEquity Value = Enterprise Value – Net Debt = 226.68 billionPer-Share DCF ValuePer-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $232.97
Conclusion
Based on the DCF valuation, the stock is overvalued. The DCF value of $232.97 per share is lower than the current market price of $361.38. The Margin of Safety is -55.12%.
