Morgan Stanley: ServiceNow Has Even More Upside

In a report published Monday, Morgan Stanley analysts maintained an Overweight rating on

, while raising the price target from $80 to $94. Despite the jump in ServiceNow shares, there is room for upside from "greater optimism" related to TAM, the analysts said. The company's share have surged 48% in the past one year and more than 100% in two years. Despite this performance, customers increasingly view "NOW as more than "just" a vendor of IT Service Management (ITSM) solutions," the analysts wrote, while adding, "…we think growing investor belief that NOW's total addressable market could be $40B or more should help propel valuation towards the high end of the SaaS group." The company's robust stock performance has resulted from upward revisions in estimates, rather than the stock's EV/Sales/Growth multiple, which has been mostly stable at around 0.23x. This multiple is "roughly inline with the SaaS average," the report mentions. While this is the case for ServiceNow's stock, the largest TAMs stock typically trade at a premium to peers of around 40%. In the report Morgan Stanley noted, "As NOW continues to push beyond the $6B ITSM market into a boarder $45B opportunity including Platform-as-a-Service (PaaS), other Service apps, and other areas of IT Operations Management (ITOM), we see potential for NOW's multiple to move higher, in line with the premium carried by other SaaS companies with large TAMs." ServiceNow has increased its sales headcount by about 50%, while billings per productive rep have remained stable over the years. If the company can sustain "only modest (-5%) annual declines in productivity, consistent with recent history," and in case the annual headcount growth continues to be at around 50%, this supports 7% upside to our CY15 revenue estimate and 18% upside to our current CY16 estimate," the analysts added.