On Thursday, Citi maintained its Buy rating on ServiceNow (NYSE: NYSE:NOW), while increasing the stock's price target to $1,068 from $915. The adjustment reflects the firm's confidence in ServiceNow's ability to navigate through an uncertain IT budget landscape. Citi's analysis suggests that ServiceNow's core business remains strong and is likely to benefit from the additional high-return opportunities presented by its GenAI upsell.
The firm's recent fieldwork indicates solid demand for ServiceNow's GenAI/Pro Plus offerings and a decrease in concerns regarding delayed deals. Although ServiceNow's stock has seen a significant 26% increase since the last earnings report, Citi acknowledges that the company has not engaged in any major transformative deals according to their research. Additionally, contract data points to a more modest performance in the US Federal market this quarter, due to challenging comparisons with previous quarters.
Citi's expectations include a one percentage point beat on constant currency Contracted Remaining Performance Obligations (cc CRPO) and a slight increase to the full-year estimates. The fourth quarter is viewed as a potentially stronger period for ServiceNow, given a robust sales pipeline, possible end-of-year budget spending, and favorable post-election seasonality.
In summary, while Citi has slightly tempered its short-term enthusiasm, the firm's long-term outlook on ServiceNow remains positive. The updated price target of $1,068 is based on an updated regression analysis, with no changes to the earnings estimates.
In other recent news, ServiceNow has been the focus of multiple analyst notes. Jefferies maintained a Buy rating on ServiceNow and raised the price target to $1,100, citing expectations for a solid earnings report. BMO Capital Markets and Goldman Sachs also increased their price targets for ServiceNow, maintaining an Outperform rating, reflecting confidence in the company's growth potential.
Additionally, Evercore ISI increased its price target to $950, based on positive feedback from a survey of ServiceNow partners and positive revenue growth expectations.
ServiceNow has announced a $1.5 billion investment in its UK operations over the next five years, aiming to expand its footprint in the region. The company plans to upgrade its London and Newport data centers with Nvidia (NASDAQ:NVDA) GPUs and aims to reach 240,000 UK learners by 2027 through ServiceNow University.
ServiceNow has reported over $1 billion in customer service management revenues and continues to hold a dominant position in the financial services sector. Despite potential disruptions due to a Department of Justice investigation into Carahsoft Technology Corp., a key partner for ServiceNow, the company remains ambitious, aiming to become the most valuable enterprise software company by 2030.
InvestingPro Insights
ServiceNow's financial metrics and market performance align with Citi's bullish outlook. According to InvestingPro data, the company boasts impressive gross profit margins of 79.07% for the last twelve months as of Q2 2024, underlining its strong core business. This aligns with Citi's assessment of ServiceNow's solid fundamental performance.
The company's revenue growth of 24.17% over the same period supports Citi's view on ServiceNow's ability to capitalize on high-return opportunities, particularly in the GenAI space. Moreover, the stock's robust performance is evident in its 61.64% price return over the past year, trading at 96.76% of its 52-week high.
InvestingPro Tips highlight ServiceNow as a prominent player in the Software industry, which corroborates Citi's confidence in the company's market position. Additionally, analysts predict the company will be profitable this year, aligning with Citi's positive long-term outlook.
It's worth noting that ServiceNow is trading at high valuation multiples across various metrics, including P/E, EBIT, and revenue. This could explain Citi's slight tempering of short-term enthusiasm while maintaining a long-term positive stance.
For investors seeking a more comprehensive analysis, InvestingPro offers 16 additional tips for ServiceNow, providing a deeper understanding of the company's financial health and market position.
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