UPDATE: MKM Partners Cuts ServiceNow (NOW) to Neutral on Macro Weakness, Valuation

(Updated - January 28, 2016 11:12 AM EST)

MKM Partners downgrades ServiceNow (NYSE: NOW) from Buy to Neutral with a price target of $60. The change follows Q4 results. Analyst Kevin Buttigieg doesn't think the stock's premium is sustainable given decelerating billings and softer macro.

Buttigieg explained, "There clearly has been a change in NOW's growth cadence - growth has slowed due to the law of large numbers but also the magnitude of the company exceeding billings expectations has lessened. This is being offset by a much faster than expected ramp in operating margins (and hence EPS and cash flows) from improved economies of scale. This provides visibility to a future valuation based on a P/E methodology that many other high-growth/high-valuation peers currently lack. However, NOW's valuation remains dependent on a sales multiple today, and at 9x 2016E revenue, the stock is at a significant premium even to its peer group, which in our view is unlikely to be sustained given decelerating billings and the current macroeconomic environment. As such, we are moving the shares to Neutral from Buy with a $60 fair value estimate calculated as 7x EV/2016E sales."

For an analyst ratings summary and ratings history on ServiceNow click here. For more ratings news on ServiceNow click here.

Shares of ServiceNow closed at $75.37 yesterday.

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