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A week ago, ServiceNow, Inc. (NYSE:NOW) came out with a strong set of second-quarter numbers that could potentially lead to a re-rate of the stock. It was overall a positive result, with revenues beating expectations by 3.5% to hit US$1.4b. ServiceNow also reported a statutory profit of US$0.29, which was an impressive 189% above what the analysts had forecast. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
Taking into account the latest results, the current consensus from ServiceNow's 29 analysts is for revenues of US$5.83b in 2021, which would reflect a meaningful 13% increase on its sales over the past 12 months. Per-share earnings are expected to bounce 35% to US$1.18. Before this earnings report, the analysts had been forecasting revenues of US$5.74b and earnings per share (EPS) of US$0.92 in 2021. There was no real change to the revenue estimates, but the analysts do seem more bullish on earnings, given the very substantial lift in earnings per share expectations following these results.
The analysts have been lifting their price targets on the back of the earnings upgrade, with the consensus price target rising 6.4% to US$659. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. The most optimistic ServiceNow analyst has a price target of US$746 per share, while the most pessimistic values it at US$580. Still, with such a tight range of estimates, it suggeststhe analysts have a pretty good idea of what they think the company is worth.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. We can infer from the latest estimates that forecasts expect a continuation of ServiceNow'shistorical trends, as the 27% annualised revenue growth to the end of 2021 is roughly in line with the 28% annual revenue growth over the past five years. Compare this with the broader industry, which analyst estimates (in aggregate) suggest will see revenues grow 14% annually. So although ServiceNow is expected to maintain its revenue growth rate, it's definitely expected to grow faster than the wider industry.
The Bottom Line
The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around ServiceNow's earnings potential next year. Happily, there were no major changes to revenue forecasts, with the business still expected to grow faster than the wider industry. We note an upgrade to the price target, suggesting that the analysts believes the intrinsic value of the business is likely to improve over time.
With that in mind, we wouldn't be too quick to come to a conclusion on ServiceNow. Long-term earnings power is much more important than next year's profits. At Simply Wall St, we have a full range of analyst estimates for ServiceNow going out to 2023, and you can see them free on our platform here..
Plus, you should also learn about the 3 warning signs we've spotted with ServiceNow .
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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