Guggenheim analysts downgraded ServiceNow (NYSE:NOW) from Buy to Neutral and removed their previous price target of $838.
The bearish move comes on the back of a strong rally in the stock, which brought its valuations to lofty levels.
“NOW has had a great run, up 110% since October of 2022 (vs. IGV +59%) and trades at a relatively rich valuation of about 15x EV/NTM Recurring Revenue, leaving little room for hiccups, which we anticipate could happen over the next few quarters,” analysts said.
This assessment is driven by several key factors.
Firstly, the projections for the first quarter of 2024 present significant challenges, with little expected upside for the year. Furthermore, the new Annual Contract Value (ACV) from the U.S. Federal segment was weaker this quarter and faces tough comparisons ahead, while field checks by analysts yielded mixed results, in contrast to the typically positive feedback.
In addition, while there is ongoing discussion about the potential of Pro+ (GenAI) within ServiceNow’s offerings, “it's difficult to find actual purchasers,” analysts noted.
“We continue to view NOW as a quality name with a strong team, but nothing goes up forever,” they added.