Bank of America reiterated a Buy rating on top pick, ServiceNow (NYSE:NOW) and raised their 12-month price target on the stock to $700.00 (From $600.00) after calls with nearly a dozen partners suggested healthy 2Q activity. NOW is expected to release 2Q earnings results on Wednesday, July 26th.
“Most partners we spoke to characterized deal activity tracking above expectations, consistent with Q1,” writes BofA analysts.
The partners conveyed strength across the portfolio of ITSM/ITOM, customer, and employee workflows. The adoption of Virtual Agent and Pro editions continued to be a significant driving force in the ITSM domain. Moreover, the increasing emphasis on AI has contributed to a noticeable rise in the uptake of other Pro editions as well.
“We believe that ServiceNow is positioned to capture share of three large market opportunities: ITSM, ITOM & custom apps, estimated by Gartner (NYSE:IT) to be $21.3bn, $16.5bn & $64.7bn, respectively,” added the analysts.
Bank of America expects NOW to report 2Q cRPO growth of 24% y/y (24% cc) exceeding the Bank’s base case for 23%. The analysts estimate a 50bps FX headwind, similar to the expectations they had heading into the 2Q.
They believe ServiceNow can sustain mid-20s growth through C28, arriving at $28.3bn rev, representing 27.6% share of combined market opportunities. AI offerings such as natural language search and AI orchestrator are slated to launch in September and are likely to represent a catalyst for cRPO/bookings as early as 4Q.
Shares of NOW are up 1.14% in pre-market trading on Wednesday.