Why This Analyst Sees A Buying Opportunity In ServiceNow Shares

ServiceNow Inc (NYSE: NOW) provides "the greatest balance of high growth, expanding margins, and increasing free cash flow," according to a note from Macquarie's Sarah Hindlian, who initiated coverage of the stock with an Outperform rating and $81 price target.

"Following growing pains FY'15 and investors not normalizing for a wind-down in a low margin segment, there is a buying opportunity at a reasonable valuation for this market leader that is disrupting core workflow accesses like Email and Lotus Notes," Hindlian wrote in a note.

Noting that the recent "bumpy" reported results have "masked the company's true performance," the analyst expects about 45 percent in long-term operating margins for the company.

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Hindlian highlighted that ServiceNow has a competitive advantage, as it has about 33 percent of Forbes Global 2000 as its clients, which paves way for "extremely high renewal rates and upselling potential."

The analyst said the near-term concerns on billing are overdone, stating that the customer dynamics are "healthy."

"We see ample runway in new and growing businesses such as IT Operations Management (ITOM) and Services Automation applications beyond the company's historically core IT market," the analyst added.

According to TipRanks, Hindlian has a success rate of 69 percent with an average return per recommendation of +6.3 percent. The analyst is ranked 812 out of 3,906 analysts.

Shortly after Tuesday's opening bell, ServiceNow was seen down 0.5 percent at $73.06.