Evercore ISI has increased its price target on ServiceNow (NYSE: NYSE:NOW) to $950, up from the previous target of $850, while maintaining an Outperform rating on the stock.
The adjustment comes as ServiceNow shares have seen a significant uptick, rising 20% over the last three months, outperforming the IGV, which increased by only 2% in the same period.
The firm's optimism is partly due to positive feedback from a survey of 15 ServiceNow partners, which includes six designated as 'Global Elite' partners.
The survey results indicate that 93% of respondents are witnessing a stronger pipeline for their ServiceNow practices now compared to 3-6 months ago, a slight increase from about 87% last quarter. Additionally, expectations for year-over-year revenue growth from ServiceNow practices are positive, with 60% of partners anticipating an acceleration over the next 12 months.
The survey also revealed that adoption expectations for ServiceNow's Pro+ are on the rise, with 87% of partners foreseeing a 5% or greater adoption rate over the coming year, a significant jump from 60% in the previous quarter. Furthermore, 73% of the partners expect a 10-30% pricing uplift for Pro+ offerings, which is in line with management's expectations of approximately 30%.
Partners have identified customer and technology workflows as areas with strong momentum, particularly in the technology sector. The public sector has also shown notable quarter-over-quarter improvement, despite recent headlines concerning the sector.
Despite this, the increased price target to $950 is based on roughly 38 times the enterprise value to the CY26 free cash flow estimates, indicating continued confidence in ServiceNow's performance.
In other recent news, ServiceNow continues to make significant strides despite potential challenges. The company recently reported over $1 billion in customer service management revenues and maintains a dominant position in the financial services sector, serving all top 24 global banks.
Bernstein, a financial firm, maintained an Outperform rating on ServiceNow, acknowledging short-term risks but expressing confidence in the company's potential for long-term growth.
However, ServiceNow and SAP face potential disruptions due to an ongoing Department of Justice investigation into Carahsoft Technology Corp., a key partner for both firms. The probe focuses on allegations of price-fixing on SAP products sold to the U.S. government, raising concerns from analysts at Keybanc and Piper about potential impacts on sales pipelines and future growth.
Despite these challenges, ServiceNow has declared its ambition to become the most valuable enterprise software company by 2030. This vision is attributed to the firm's innovative spirit and strong corporate culture.
The company's future growth is projected to be driven by increasing enterprise investment in AI, a market expected to reach $3 trillion by 2027, with collaborations with NVIDIA (NASDAQ:NVDA) and Hugging Face to develop domain-specific large language models underway.
InvestingPro Insights
ServiceNow's recent performance aligns with the optimistic outlook presented by Evercore ISI. According to InvestingPro data, the company's stock is trading near its 52-week high, with a robust 63.35% price total return over the past year. This performance is consistent with the 20% rise over the last three months noted in the article.
The company's financial health appears strong, with InvestingPro data showing impressive gross profit margins of 79.07% for the last twelve months as of Q2 2024. This aligns with an InvestingPro Tip highlighting ServiceNow's "impressive gross profit margins." Additionally, the company's revenue growth of 24.17% over the same period supports the positive pipeline feedback from ServiceNow partners mentioned in the article.
While the article discusses potential for future growth, it's worth noting that ServiceNow is currently trading at high valuation multiples. An InvestingPro Tip points out that the company is "trading at a high earnings multiple," with a P/E ratio of 165.3. This high valuation could explain why Evercore ISI suggests investors might need to exercise patience in the near term, despite the increased price target.
For investors seeking a more comprehensive analysis, InvestingPro offers 16 additional tips for ServiceNow, providing a deeper understanding of the company's financial position and market performance.
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