Cantor Fitzgerald has revised its price target for ServiceNow (NYSE:NOW), lowering it to $200 from the prior level of $240, yet the research firm continues to endorse the stock with an Overweight rating. ServiceNow's current share price stands at approximately $128.56, which is only marginally higher than its 52-week low of $123.78, as per InvestingPro data.
The primary rationale for reducing the price objective is tied to a broad compression of valuation multiples within the software sector. The new target price reflects an enterprise value to revenue multiple (EV/R) of 11 times for calendar year 2027, contrasted with the firm's calculated three-year next-twelve-month average of 12.7 times. This adjustment aligns with ServiceNow's existing elevated market metrics, where the price-to-earnings (P/E) ratio is at 77.7 and the enterprise value to EBITDA ratio stands at 48.2.
ServiceNow's stock performance in 2024 has notably trailed the S&P 500 benchmark, declining by 16%, in contrast to the index's modest gain of 0.9%. Despite the lowered target, Cantor Fitzgerald contends the risk of substantial share price deterioration remains limited, estimating a bear-case scenario corresponding to roughly a 12% fall as improbable.
The firm also notes that market participants appear cognizant of challenges pertaining to ServiceNow's U.S. federal sector engagements, which constitute about 10% of overall sales. Investor sentiment has been further influenced by public scrutiny of ServiceNow's recent merger and acquisition initiatives.
In strategic developments, ServiceNow recently announced a multi-year alliance with OpenAI to embed advanced AI capabilities into its platform. This collaboration is intended to bolster features such as AI-driven assistance, content generation, and intelligent search functionalities. Following this announcement, RBC Capital sustained its Outperform rating and a price target of $195 for ServiceNow. Concurrently, the company enhanced its global Partner Program to emphasize AI agent innovation, thereby expanding opportunities for independent software vendors and developers to utilize the ServiceNow AI Platform.
Despite these forward-looking initiatives, analyst opinions are mixed regarding ServiceNow’s M&A strategy. Both BMO Capital Markets and Oppenheimer have decreased their price targets to $175, citing unease about the company's acquisition approach, though they uphold their Outperform ratings. These cautious perspectives underscore concerns about how recent transactions may be affecting enterprise valuation.
All these factors come into focus as ServiceNow prepares to release its fourth-quarter earnings report, with stakeholders watching closely for insights on financial performance and strategic direction.