On Wednesday, Jefferies maintained a Buy rating on ServiceNow (NYSE: NYSE:NOW) shares and increased the price target to $1,100 from the previous $900. The firm's analyst cited expectations for the company to report a modest upside versus consensus for third-quarter subscription revenue and constant currency remaining performance obligations (CC cRPO).
The analyst noted that interactions with management and partner checks during the third quarter were constructive. There is also an anticipation for updates on artificial intelligence and new product traction during the upcoming earnings report. Investors are particularly interested in gaining clarity on the potential risks to ServiceNow's Federal business that may be associated with Carahsoft.
Despite the positive outlook, the analyst expects the stock's reaction to the earnings report to be more muted compared to the third quarter. This tempered expectation is attributed to ServiceNow's valuation, which is approximately 37 times its forecasted 2026 free cash flow, and current market positioning.
ServiceNow, which is known for its cloud computing platform that helps companies manage digital workflows, remains a top large-cap pick for Jefferies. The firm's analyst believes the company will deliver a solid earnings report, reflecting the company's ongoing growth and product development.
In other recent news, ServiceNow has announced a $1.5 billion investment in its UK operations over the next five years. This move is aimed at expanding the company's footprint in the region and includes upgrades to its London and Newport data centers with Nvidia (NASDAQ:NVDA) GPUs. Moreover, ServiceNow has plans to reach 240,000 UK learners by 2027 through ServiceNow University, an initiative designed to upskill talent.
In recent analyst notes, BMO Capital Markets, Goldman Sachs, and Evercore ISI have increased their price targets for ServiceNow, maintaining an Outperform rating. These adjustments reflect confidence in the company's growth potential. Bernstein, while acknowledging potential short-term risks, has also expressed confidence in the company's long-term growth potential.
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. These are recent developments in the company's trajectory.
InvestingPro Insights
ServiceNow's financial metrics and market performance align closely with Jefferies' 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, underscoring its operational efficiency. This strong profitability supports the analyst's positive stance on the company's financial health.
The company's revenue growth remains robust, with a 24.17% increase over the last twelve months, and a 22.19% growth in the most recent quarter. This sustained growth trajectory aligns with the analyst's expectations for a modest upside in subscription revenue for the upcoming earnings report.
InvestingPro Tips highlight that ServiceNow is a prominent player in the Software industry and operates with a moderate level of debt. These factors contribute to the company's strong market position and financial stability, which are likely considerations in Jefferies' decision to maintain a Buy rating.
It is worth noting that ServiceNow is trading near its 52-week high, with its current price at 97.72% of the peak. This aligns with the analyst's observation about the company's high valuation, trading at approximately 37 times forecasted 2026 free cash flow.
For investors seeking a more comprehensive analysis, InvestingPro offers 16 additional tips for ServiceNow, providing a deeper understanding of the company's financial position and market dynamics.
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