ServiceNow stock receives its first ‘sell’ rating

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on Jul 8, 2024
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  • Guggenheim sees downside in ServiceNow stock to $640.
  • Jim Cramer disagrees with the investment firm's view on NOW.
  • ServiceNow shares are down more than 5.0% on Monday.

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ServiceNow Inc (NYSE: NOW) lost about 5.0% at writing after a Guggenheim analyst downgraded the software giant to “sell” on Monday. 

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John DiFucci is now the only one among Wall Street analysts to have a sell rating on NOW. 

ServiceNow stock was trading at an all-time high before his bearish call. 

ServiceNow stock could tank to $640

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John DiFucci announced a price target of $640 for NOW shares today that translates to about a 20% downside from Friday’s close. 

The Guggenheim analyst recommends pulling out of ServiceNow stock as the setup for it looks “unfavourable” not just for the back half of this year but into 2025 as well. 

The New York listed firm needs a material boost to business momentum in order to meet the current consensus for its subscription unit. But that looks unlikely “given the dearth of [generative AI] sales per our field checks,” he told clients in a note on Monday. 

NOW may have to lower its 2024 expectations

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The Guggenheim analyst is bearish on ServiceNow share price as its management “will have to lower top-line subscription guidance for 2024”. 

Although, NOW “may delay the admission of reality until it happens”. Estimates for next year are currently “too high” as well, he added in a research note on Monday. 

John DiFucci’s dovish stance on ServiceNow stock is based on his recent conversations with some of the company’s partners. 

Note that the $157 billion company based out of Santa Clara, California does not pay a dividend at writing. So, that side of its story is not currently attractive either. 

Cramer disagrees with Guggenheim’s view on ServiceNow

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John DiFucci agreed that the U.S. federal business of ServiceNow remains strong but said the tough comparisons somewhat dim its attraction. State, local, and education segment, on the other hand, is not “mature” enough to support its premium multiple, he added. 

All in all, the Guggenheim analyst is against owning NOW shares as monetisation of AI “is not happening en masse and is not likely to materialise this year, as management has suggested it would”. 

Famed investor and Mad Money host Jim Cramer, however, disagrees with DiFucci analysis of ServiceNow stock

What he says is there is no real AI business, which is very, very contrary to what Bill McDermott has been saying. He’s basically saying that Bill McDermott doesn’t know what he’s doing, and I’m not going to make that call.

NOW is scheduled to report its second-quarter financial results on July 24th. Consensus is for it to earn $1.08 a share versus 77 cents per share a year ago. 

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