On Friday, TD (TSX:TD) Cowen reaffirmed its Buy rating and $870.00 price target for ServiceNow (NYSE:NOW). The assessment comes ahead of the company's first-quarter earnings report scheduled for April 24, 2024. The firm's analysis, based on a survey of partners and system integrators (SIs), suggests a positive outlook for the first quarter, although there were some mixed signals regarding the pipeline for the following quarter.
The growth in the federal sector does not appear to be as strong in the first quarter as it was in the second half of 2023, and the adoption of Generation AI technology is still in the nascent stages.
According to TD Cowen, ServiceNow is expected to post a modest earnings beat and provide guidance that aligns with current expectations. The firm anticipates that more significant growth drivers for ServiceNow will likely emerge in the latter half of the year. With the company's enterprise value to calendar year 2025 estimated free cash flow (EV/CY25E FCF) ratio hovering around 35 times, the firm maintains its Buy rating on the stock.
ServiceNow's upcoming earnings report is being watched closely by investors, as it will provide insights into the company's performance at the start of the year and its outlook for the months ahead. The company's engagement with federal clients and the early stages of Generation AI adoption are among the factors contributing to the forecast provided by TD Cowen.
The reaffirmed price target of $870.00 reflects confidence in ServiceNow's potential for growth, particularly in the second half of the year, as indicated by the firm's analysis. Investors and market watchers are likely to pay attention to the actual earnings results and guidance provided by ServiceNow on April 24 to gauge whether the company meets, exceeds, or falls short of expectations.
InvestingPro Insights
As ServiceNow (NYSE:NOW) gears up for its first-quarter earnings report, investors can gain additional insights from recent InvestingPro data and tips. The company boasts a substantial market capitalization of $150.21 billion, reflecting its prominent position in the software industry—a detail that aligns with the positive outlook from TD Cowen. With a high gross profit margin of 78.59% over the last twelve months as of Q1 2023, ServiceNow demonstrates impressive efficiency in its operations. The company’s revenue growth also remains robust, with a 23.82% increase over the last twelve months, suggesting a strong market demand for its offerings.
InvestingPro Tips highlight that ServiceNow is trading at a low PEG ratio of 0.2, indicating that its price may be undervalued relative to its near-term earnings growth. Moreover, despite a high Price / Book multiple of 19.69, analysts predict the company will be profitable this year, which could justify the premium valuation. ServiceNow’s ability to generate high returns is evident, with a 53.78% return over the last year, marking a significant achievement for shareholders.
For those interested in a deeper analysis, there are additional InvestingPro Tips available that could provide further context on ServiceNow's financial health and market performance. Investors can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking exclusive insights. With the next earnings date on April 24, 2024, ServiceNow remains a company to watch in the software sector.
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