Shares of Salesforce (CRM) are on the rise on Wednesday after Morgan Stanley analyst Keith Weiss upgraded the stock to a buy-equivalent rating. The analyst argued that the company is well-positioned for ramping digital transformation demand and that more constructive margin commentary from management tilts the risk-reward "significantly more favorably," particularly given the shares' underperformance since the Slack deal announcement. 

MORE FAVORABLE RISK/REWARD: Morgan Stanley analyst Keith Weiss upgraded Salesforce to Overweight from Equal Weight with an unchanged price target of $270. The analyst sees a more favorable risk/reward given the stock's underperformance post the Slack acquisition. With a broad solution portfolio targeting customer interactions across sales, customer support, and marketing, Salesforce is well-positioned to benefit from an accelerating pace of investment in strategic digital transformation initiatives, Weiss told investors in a research note. He believes the recent share pullback provides a good entry point.

While concerns on M&A appetite and durable margin expansion may linger, leading franchises do not stay cheap for long, particularly amidst the strong demand backdrop over the next several years, the analyst contended. Weiss sees several catalysts ahead that should push shares higher, including a core portfolio that should benefit from 2021 recovery, what he views as the strategic rationale behind buying Slack, and a more constructive margin outlook.

WHAT'S NOTABLE: On Tuesday, Jefferies analyst Brent Thill lowered the firm's price target on Salesforce to $300 from $320, while keeping a Buy rating on the shares. Thill has cut his price targets across 70% of his covered companies in software to account for multiple compression in the space, telling investors that he believes software valuations are "taking a breather post their massive run" in 2020. However, he noted that valuations for "quality software names" are still 15%-20% above their trough levels and he continues to be positive long-term given what he sees as the group's "strong fundamentals."

PRICE ACTION: In Wednesday afternoon trading, shares of Salesforce have gained over 3% to $221.29.