ServiceNow's Q3 Performance Fuels Optimism: Analysts Lift Price Targets Amid Solid Revenue And Growth Prospects

BMO Capital Markets analyst Keith Bachman reiterated the Outperform rating on ServiceNow, Inc. NOW, raising the price target to $630 from $615.

The company posted Q3 earnings of $2.92 per share, beating the $2.56 estimate. Revenues clocked in at $2.29 billion, beating the estimate of $2.27 billion.

While the analyst harbors concerns about Plus pricing, Bachman acknowledged that results were better than anticipated.

NOW maintained the growth momentum and finished Q3 with solid revs and CRPO, the analyst notes.

Bachman writes that the government sector was impressive, even factoring in seasonality, with 19 fed deals signed over $1M+ net new ACV, including three contracts signed over $10M+ net new ACV, out of total of four contracts signed in Q3 with $10M+ net new ACV.

The strong fed business is driven by the demand standardizing on a single platform for end-to-end solutions, and some fed agencies also had interests in specific domains with better security, the analyst adds.

Overall, the analyst says ServiceNow will be able to sustain growth in its core ITSM market, as well as drive growth in new product areas, leveraging its large installed base for upsell opportunities.

The mix of ITSM business expanded sequentially from 58% to 60%, mainly due to strong new logo growth, which typically starts with ITSM products. Strong Gov signings could have contributed as well, the analyst adds.

Based on the above, Bachman raised the FY23 revenue estimate to $8.935 billion from $8.910 billion, increasing the EPS estimate to $10.46 from $9.95.

Stifel analyst Brad R. Reback reiterated a Buy rating on ServiceNow, raising the price target to $650 from $640.

NOW remains a top pick for the analyst with its expanding, AI-infused product portfolio, which remains well-positioned to sustain 20%+ growth in coming years, the analyst notes.

The ServiceNow Platform now reaches well beyond its legacy stronghold of IT Service Management, and the company's sustained growth rates are expected to remain elevated as it successfully manages Customer Service, HR, Software Assets, and Security. 

Reback writes that the company's operating fundamentals remain among the best in the industry and expects the growth and margin outperformance to continue moving forward. 

The analyst raised FY24 EPS estimate to $12.76 from $11.73.

Price Action: NOW shares are trading higher by 4.00% to $551.38 on the last check Thursday.