On Monday, Piper Sandler, a financial services firm, increased its price target on ServiceNow (NYSE:NYSE:NOW) shares to $1,200 from the previous $1,000 while retaining an Overweight rating on the stock. The adjustment was attributed to an elevated terminal enterprise value to free cash flow (EV/FCF) multiple, which reflects changes in the valuation of ServiceNow's peer group.
With a current market capitalization of $221.5 billion and an impressive one-year return of 58.8%, ServiceNow has demonstrated strong market performance. According to InvestingPro analysis, the stock is currently trading above its calculated Fair Value, with 17 key insights available for subscribers.
The analysts at Piper Sandler have made slight revisions to their expense forecast for the year 2025. They have reduced the subscription gross margins (GMs) from 84% to 83.5% and have also marginally decreased the expected growth in operating expenses.
These changes are expected to balance each other out, leaving the operating margin and earnings per share (EPS) estimates largely unaltered. InvestingPro data shows ServiceNow maintains robust gross profit margins of 79.2% and has achieved a "GREAT" overall financial health score, suggesting strong operational efficiency.
ServiceNow's decision to invest in expanding its cloud datacenter infrastructure is intended to support its growth and is the reason behind the slight reduction in GMs. Meanwhile, the operating expense growth has been adjusted downwards due to an acceleration in hiring into the year 2024.
The analysts remain positive about ServiceNow's prospects, particularly highlighting the company's positioning to benefit from the adoption of Generative AI at the application layer. Looking ahead to the year 2025, which is anticipated to be a significant year for client renewals, Piper Sandler believes ServiceNow will find numerous opportunities to continue scaling its Now Assist platform. This optimism is reflected in the revised price target, signaling confidence in the company's growth trajectory and market position.
In other recent news, ServiceNow has been the recipient of increased optimism from financial firms. RBC Capital Markets raised its price target on the company's shares to $1,210, citing confidence in the company's long-term growth potential, especially as it expands beyond its core IT services. ServiceNow's impressive 23.48% revenue growth and 79.24% gross profit margins support this positive outlook.
Moreover, ServiceNow has amended its executive severance policy, standardizing severance benefits for the executive team. This policy change is expected to support the executive leadership in transition scenarios.
ServiceNow also received an Outperform rating from Raymond (NS:RYMD) James, reflecting confidence in the company's growth trajectory and potential margin improvements. Stifel, another financial services company, adjusted its price target for ServiceNow, while maintaining a Hold rating, signaling a balanced view on growth and valuation.
TD Cowen raised its price target for ServiceNow and spotlighted it as a Best Idea for 2025, suggesting a strong future performance. The new AI-driven products introduced by ServiceNow were cited as a significant factor in this positive outlook.
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