Raymond James analyst initiates coverage of ServiceNow (NOW.US) with an "outperform" rating.

Investor interest in ServiceNow (NOW.US) is on the rise, with the current high stock price suggesting that the market may be too optimistic about the outlook for this software company. However, analysts at Raymond James remain bullish on the stock. In a report released on Tuesday, analyst Adam Tindle and his team initiated coverage on ServiceNow with an "Outperform" rating and a price target of $1200, representing a 10% upside potential from the current stock price. ServiceNow is a California-based cloud computing company that provides a variety of workflow automation tools for large enterprises, integrating Generative AI and supporting features like intelligent chat and Siasun Robot & Automation. Wall Street expects ServiceNow's revenue to grow by 22.5% year over year, slightly lower than the growth rates of 23.8% and 23% seen in the previous two years. The potential of high-growth artificial intelligence makes investors willing to pay a premium for the company. Based on future sales estimates, ServiceNow's enterprise value to sales ratio (EV/Sales) is at 21.7 times, significantly higher than its five-year average of 18.7 times and more than twice that of Salesforce. While this valuation level reflects investors' confidence in the company's growth potential, it also means that its stock price is more susceptible to sharp declines due to risks such as underperformance in financial data. Tindle acknowledges the challenge posed by this high valuation. He wrote in the report, "In the short term, this valuation is indeed demanding." However, he believes that ServiceNow, with its high revenue growth and projected free cash flow exceeding $3.4 billion by 2024, deserves an "elite level" valuation. He also notes that the company's profitability potential through artificial intelligence could further boost its profit margin and provide greater momentum for its stock price. However, not everyone is bullish on ServiceNow. This month, KeyBanc downgraded its rating from "Overweight" to "Sector Weight," citing potential budget cuts that could bring uncertainty. Particularly with federal sales seen as one of its "primary growth drivers," the company may face increased risks. KeyBanc also pointed out the currently high valuation issue of ServiceNow. At the time of writing, the stock was up 1%, trading at $1099.155.