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On Wednesday, Evercore ISI analysts increased their price target on ServiceNow (NYSE:NOW) shares from $1,000 to $1,100, while maintaining an Outperform rating. With a current market capitalization of $212.77 billion and impressive gross profit margins of 79.24%, ServiceNow continues to demonstrate strong market presence.
According to InvestingPro data, the company appears slightly overvalued at current levels, though analysts anticipate robust fourth-quarter earnings and positive outlook for 2025, despite potential foreign exchange headwinds that might affect FY25 guidance.
The research firm's optimism is underpinned by a recent survey of 15 large ServiceNow partners, who collectively account for approximately $500-$750 million of ServiceNow's total software spend. This partner confidence aligns with ServiceNow's strong financial performance, showing 23.48% revenue growth in the last twelve months.
The survey revealed several positive indicators for ServiceNow's business. Notably, 80% of partners reported a stronger pipeline for their ServiceNow practices compared to 3-6 months ago, albeit slightly down from the previous quarter's 93%. This slight decrease is considered an indication of "strength on top of strength."
Furthermore, the survey indicated that 80% of partners expect year-over-year revenue growth from their ServiceNow practices to accelerate over the next 12 months. This is an increase from the 60% who had the same expectation last quarter. The shift primarily moved from "stable" to "up slightly." In terms of product adoption, 93% of partners foresee a more than 5% increase in Pro+ adoption over the coming year, compared to 87% in the previous quarter.
The analysts also highlighted strong momentum in creator and technology workflows, with technology leading among verticals. Public sector, financial services, and manufacturing sectors are also showing quarter-over-quarter improvements. Despite potential share price volatility due to foreign exchange concerns, Evercore ISI expects that investors will look beyond the short-term headwinds, justifying the higher price target based on approximately 44 times the enterprise value to calendar year 2026 free cash flow ratio.
Evercore ISI's report concludes by adjusting estimates to reflect a more challenging macroeconomic environment but emphasizes the positive feedback from partner checks. This led to the decision to increase the price target, suggesting confidence in ServiceNow's performance and market position despite the anticipated foreign exchange challenges. Investors looking for deeper insights can access comprehensive analysis through InvestingPro, which reveals 15+ additional key metrics and shows the company's next earnings report is scheduled for January 22, 2025.
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