Technology

Key Analyst Defends ServiceNow on Weakness

Jon C. Ogg

Published: January 28, 2016 11:40 am

Last Updated: January 13, 2020 2:26 pm

ServiceNow Inc. (NYSE: NOW) had a great earnings report on the surface. What changed all that though is the guidance. This stock was last seen down over 20% and trading under $60 on the news. Go ahead chalk that up as a 52-week low.

So what happens when analyst doesn’t just defend it but says to back up the truck and buy the stock?

ServiceNow provides a cloud-based IT Services Management software platform to large enterprise customers. Canaccord Genuity has a Buy rating and kept its $90 target. If this report proves right, it means that the other analysts who lowered their targets are wrong — and it would have been a harbinger for huge upside.

The report from Thursday morning said that ServiceNow’s report was nearly perfect in every way but produced an after-hours beat-down in the stock. Canaccord Genuity analyst Richard Davis is now among the most bullish after the drop. His report said:

ServiceNow posted very good results and guidance, but a low end of the range calculated billings clobbered the stock after-hours. This seems like an overreaction for the broadest and simplest reason that calculated billings are at best a very rough approximation of actual sales execution. That said, it is quite clear that we were decisively wrong to expect investors to react positively to what was a very good quarter and guide from a best-in-class, fast-growing, nicely profitable company that is valued at less than 1.0x free cash flow PE/G on 2017E. In addition, if you use our Growth + FCF margin ratio, NOW is the best executing firm of over 100 that we track with a ~60% sum on freshly guided 2016 estimates. More broadly, the violence of the stock’s AH reaction and negativity of questions posed on the call for such a good company makes us wonder if there is any hope for the sector’s lesser lights during this earnings season. While shaken, we fall back on the hope that logic will prevail and NOW shares will rebound, perhaps sharply, at some point this year. BUY.

Not every analyst agrees. After all, big price drops usually act as embarrassing moments for analysts and investors alike, when they are too bullish.

Mizuho downgraded ServiceNow to Neutral from Buy and cut its target to $65 from $90. These are some other analyst calls seen about ServiceNow on the news:

• Credit Suisse cut its target price to $60 from $70.
• Goldman Sachs cut its target price to $68 from $87.
• Raymond James cut its target price to $80 from $90.
• RBC Capital Markets cut its target to $85 from $90 but kept as a Top Pick.
• Robet W. Baird cut its target price to $75 from $85.

ServiceNow saw its shares trading at $59.60 late Thursday morning. Its new 52-week range is $57.74 to $91.28, and the consensus analyst target before the news was closer to $91.00. That consensus target will ratchet lower in the coming days.