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ServiceNow shares get price target bump by Citi on continued outperformance

EditorNatashya Angelica
Published 18/07/2024, 02:54 am
NOW
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On Wednesday, Citi maintained its Buy rating on shares of ServiceNow (NYSE:NOW) and slightly increased its price target to $911 from $909. The firm's analyst highlighted the company's potential for continued outperformance in the face of a sluggish software demand environment.

ServiceNow's expanding automation platform is expected to consolidate market share and leverage AI and GenAI use cases to create value in IT and back/mid-office operations.

Concerns regarding the European economic climate were acknowledged, yet the analyst anticipates that this would be balanced by strong performance in North America and the Middle East, along with significant deal momentum. This includes one of ServiceNow's largest deals to date.

The analyst projects that the company will surpass expectations and increase guidance due to substantial deal activity, an increasing contribution from the Pro-Plus segment, and heightened activity in the federal sector.

Citi anticipates that ServiceNow will experience stronger positive revisions compared to the first quarter, driven by conservative estimates and potential acceleration in the combined remaining performance obligations (cRPO) metric in the second half of the year. This could serve as an additional catalyst for the company's performance.

The firm has adjusted its top-line estimates upward for ServiceNow, while also aligning free cash flow (FCF) margins with the targets set during the company's analyst day. The revised price target of $911 reflects a positive outlook for the company's upcoming earnings.

In other recent news, CMB International expressed optimism for tech giants Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), and ServiceNow, citing artificial intelligence and margin expansion as key investment themes. The firm anticipates sustained growth for these companies, despite mixed revenue growth among U.S. internet and software companies.

ServiceNow was also the focus of analyst firms Needham, TD Cowen, and Oppenheimer, all maintaining positive ratings on the company's stock. ServiceNow has been making strides in AI integration and announced an enhanced partnership with Microsoft.

On the other hand, DNOW Inc. reported Q1 earnings and revenue that fell short of expectations, yet the company remains optimistic, upgrading its full-year outlook for 2024. These are some of the recent developments for both ServiceNow and DNOW Inc. It's worth noting that the performances of these companies are subject to various factors, including market conditions and internal strategies.

InvestingPro Insights

As Citi maintains a bullish stance on ServiceNow, current InvestingPro data provides additional context to the company's financial health. ServiceNow's market capitalization stands at a robust $151.38 billion, underscoring its significant presence in the software industry.

With a high gross profit margin of 78.87% over the last twelve months as of Q1 2024, the company demonstrates its capacity to maintain profitability amid a challenging economic landscape. Moreover, the P/E ratio, while on the higher end at 78.25, is complemented by a low PEG ratio of 0.22, suggesting that ServiceNow's earnings growth could justify its valuation.

InvestingPro Tips highlight ServiceNow's impressive gross profit margins and its status as a prominent player in the Software industry. These insights are particularly relevant given the company's focus on leveraging AI and GenAI to drive value in IT and operations, aligning with the analyst's positive outlook. With analysts predicting profitability this year and a strong return over the last five years, ServiceNow's financials paint a picture of a company that is navigating the demands of the market effectively.

To gain deeper insights and additional InvestingPro Tips, readers can take advantage of an exclusive offer using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. This offer provides access to a wealth of financial data and expert analysis to help investors make informed decisions. There are 14 additional InvestingPro Tips available for ServiceNow, each offering strategic guidance based on real-time data and market trends.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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