ServiceNow 'Buy' Rating Reiterated At Brean Capital

In a report published Friday, analysts at Brean Capital reiterate their buy rating on ServiceNow, Inc. NOW, while reducing the price target from $97 to $90. Although the company reported its Q1 results marginally above expectations, the results were adversely impacted by its drained pipeline at the beginning of the quarter, as well as the sales force reorganization. "This is a common occurrence for enterprise software companies, but appears to have unfortunately caught many by surprise (ourselves included). However, we believe the after-market reaction reflects strong outperformance into the print, as well as overall anxiety in the market, as opposed to deteriorating fundamentals," the analysts explained. Brean Capital believes that ServiceNow's underlying business continues to be healthy, with no change in the competitive scenario. The target price has been revised based on adjustments to the long-term revenue growth estimates. "We believe ServiceNow saw increased seasonality in Q1, which is in part the result of the company's shift to Services Automation beyond IT, where the company will be focusing on larger cross-enterprise deals," the analysts added. This could result in longer sales cycles and potential slippages between quarters in some deals. However, the analysts believe that the company's growth and TAM profiles are among the best in the SaaS market, with better-than-anticipated cash flows and operating margins. This justifies premium valuation for ServiceNow. The company's has issued conservation guidance for Q2.