ServiceNow Rises on Upgrade to Overweight by Morgan Stanley

'A rising priority for workflow automation post-Covid well positions NOW to sustain 25%-plus revenue growth,' Morgan Stanley said.
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ServiceNow  (NOW) - Get Report rose Thursday after Morgan Stanley analyst Keith Weiss upgraded its shares to overweight from equal weight, citing the workflow software company's growth potential.

Weiss lifted his share-price target to $652, the highest estimate on Wall Street, according to Bloomberg, from $559. ServiceNow shares recently traded at $513.92, up 2.15%, and have soared 83% year to date.

“A rising priority for workflow automation post-Covid well positions NOW to sustain 25%-plus revenue growth,” and sustainable free-cash-flow growth above 30%, Weiss wrote in a commentary, Bloomberg reports. That rate of FCF through 2023“ should prove the current valuation still attractive,” he said.

ServiceNow’s billings growth “sustained much better than peers throughout the downturn,” Weiss said. And new billings growth should rise in 2021, in line with demand, he said.

Morningstar analyst Dan Romanoff gave the company a healthy prognosis after its earnings report last month. “Sales execution remains a bright spot, especially in the face of the ongoing pandemic and the new virtual selling reality,” he wrote.

“We think digital transformation efforts are being pulled forward as firms’ IT infrastructures have often been exposed as insufficient in the current remote work environment," Romanoff wrote. "We believe results continue to support our thesis centering on the company’s land and expand strategy.”

The analyst wrote that ServiceNow “continues to leverage its strength in workflow automation to penetrate existing customers more deeply in IT and more broadly with HR and customer service specific products. We maintain our wide moat and after filtering results and guidance through our model, we are raising our fair value estimate to $440, from $420.”