We recently took a fresh look at ServiceNow (NOW) and raised our economic moat rating to wide from narrow while maintaining a positive moat trend rating. We have greater conviction in the company’s ability to profit from customer switching costs, given its robust retention metrics. As a result of assuming excess returns over a 20-year time frame--consistent with our wide moat rating methodology--we increased our fair value estimate to $221 per share from $195. We are maintaining our medium fair value uncertainty rating. We see the shares as undervalued today and still see upside for ServiceNow’s long-term growth story around major enterprises modernizing their IT infrastructure.
ServiceNow has followed the successful software paradigm of introducing a single, mission-critical product in a market vertical and expanding from that beachhead into other niches, providing ample upselling and cross-selling opportunities. ServiceNow created a software-as-a-service IT service management product, a cloud ticketing tool designed to track internal IT issues. The company has since entered the IT operations management, IT business management, human resources, customer service management, and security verticals.
William Fitzsimmons does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.