r/valueinvesting
Is $CRM trading at 60% of its intrinsic value?
Author's DCF model values $CRM at $248/share vs current $150, citing strong FCF, massive buybacks, and surging AI Agentforce ARR.
- DCF valuation indicates the stock is trading at a significant discount (61% of intrinsic value at $248/share).
- Management authorized a massive $25B debt-funded share repurchase, signaling confidence in undervaluation.
- AI business is accelerating, with Agentforce ARR reaching $1.2B, up 205% YoY.
- The $25B debt-funded buyback increases interest expenses, leading to a lowered FCF growth outlook.
- Significant negative balance sheet adjustment (-$19.67B) due to new debt reduces the computed equity value.
Salesforce's TTM free cash flow is about 14.66B. Management guided FY2027 free cash flow growth to 4%-5%. The balance sheet adjustment is -$19.67B, calculated as cash, marketable securities, and strategic investments minus debt, including the new debt from the $25B debt-funded share repurchase.
Using a simple DCF:
- Starting FCF: 14.66B
- 5-year growth: 5%
- Terminal growth: 2.5%
- Discount rate: 10%
- Balance sheet adjustment: -19.67B
- Shares outstanding: 819M
That gives an estimated equity value of about 203B or 248/share. With $CRM trading around 150/share, the stock is trading at roughly 61% of the computed intrinsic value.
Salesforce also has a few things going for it:
Management authorized a major buyback program, suggesting they believe the stock is undervalued.
Q1 FY2027 revenue grew 13% year over year to $11.1B, while subscription and support revenue grew 14%. Free cash flow growth outlook was lowered largely to reflect debt service expense from the 25B debt-funded buyback.
Salesforce is becoming a player in the AI space. Agentforce ARR reached $1.2B in Q1 FY2027, up 205% year over year.
80% SaaS companies are a big BUY in this market and CRM in that 80%.
They’ve brought multiple customers on to the past two earnings calls to talk about how they’re using agentforce
Sweet, the next thing on my list to do was to listen to the last few earnings calls and read the reports
NOW is better
NOW too has an AI Agent.
But as I mentioned in another comment, I agree it is better because their main goal is to transform their value proposition (which they have been at it for awhile back) from just an ITSM Platform, into a workflow control tower layer, overseeing and deploying various Agentic Agents across workflows.
If ServiceNow was just relying purely on NowAssist, like how Salesforce is relying on AgentForce, I would not have bought in as much as I had.
Their expanded and growing platform layer, with their increased partnerships, will ensure they emerge one of the winners when the dust settles.
Yep, growth is also much higher and customer retention is very high fundamentals looo better it’s a richer valuation but historically NOW has always been very high valuation so this is now relative to it. I don’t see ai replacing service now but I could see margin compression
Yep agreed you can't vibe code a platform, let alone a stable and trusted platform. For the same target audience as ServiceNow. You will need years for that, but also for credibility and time in generating that.
And yea, I do agree the margin compressions are real. Hence why every SaaS gets re-rated. And this all SaaS, including ServiceNow, are brought back to the starting point of a "Show-me" race, to see which SaaS company survives this AI Industrialization.
You have to adjust their net income, PE and so on for their stock based compensation (which is a reale expense). Salesforce is close to fair value for me at a forward PE of 20 (adjusted for SBC).
Agentforce includes Slack which is becoming the AI OS, basically a message bus for AI agents to work together
I'm imagining something like Cursor, but with access to enterprise data instead of a code repo. Plus, they own Slack and few other tools, that could be a good fit for AI agent automation
I came to the same conclusion from my analysis. I'm already up $9.9.
Buy CRM full port!
The only danger to the CRM revival thesis is that Anthropic and OpenAI enter a pricing war which further decreases tokenized costs, allowing greater access to their LLMs and leading to more Agentic AI build-outs. Which in turn threatens existing premiums for AgentForce, and anyone else thinking that integration of AI into their software means building their own AI Agent.....
They have their own xLAM model plus the lower token prices would probably increase the margins so that’s bullish for Agentforce
Is $CRM trading at 60% of its intrinsic value?
No.