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Salesforce stock upgraded to Neutral by Guggenheim

Yahoo Finance Live anchors discuss Guggenheim upgrading Salesforce stock to Neutral from Sell.

Video transcript

BRIAN SOZZI: All right, staying on tech, Guggenheim out with an upgrade on Salesforce from sell to neutral, as it maintains its view of Salesforce's new annualized contractual value being more modest compared to what most investors think. Say that fast three times. I can't, at least not right now.

This is an interesting upgrade, almost sounds like another downgrade to sell. It seems to be a valuation-based call from the folks here over at Guggenheim, noting that when they downgraded Salesforce on August 11, they initiated coverage, the stock then went on to fall 20%. Of course, Salesforce had a little un-Salesforce-like earnings call a couple of days ago.

But still, Guggenheim, while upgrading, worried about how macroeconomic weakness will continue to impact the company. Also concerned on how their operating margins are below many of their peers. So somewhat of a backhanded upgrade by the folks at Guggenheim.

BRAD SMITH: Look, you talk about a stock that's actually getting back to some of its year to date lows and touching within that ballpark once again, it's Salesforce. I mean, take a look at the chart here. I mean it's down 39% year to date since November of last year.

We had seen those declines. And that was the last top out, at least for them, was mid-November of last year. Down nearly 50% from that time. And so all of these things considered, there's still going to be I think, at least in this period, when you've got a company that's been so hellbent-- and much of the ERP landscape has been-- on acquiring to grow out their business--

We saw that within Salesforce. They take shots where they need to. There's probably going to be more cash that goes out the door if they see a ripe opportunity for an acquisition. And so all of those things considered, there's still probably a little bit of headwinds.

If you're the company making the acquisition, you tend to see your stock go even lower. So keep an eye out. If there are, within this landscape, whether it's Salesforce, whether it's SAP, whether it's Oracle, if they see an opportunity for an acquisition, they're probably going to strike. Why? Because the rest of the equity market actually proves that opportunity does exist on some of the depressed valuations that we're seeing right now too.

BRIAN SOZZI: You're right on, Brad. But I think we're sitting here 12 to 18 months from now talking about Salesforce's next big acquisition. I think that is very, very realistic.