ServiceNow (NOW) has announced that it has now priced a public offering of $1.5 billion aggregate principal amount of 1.400% senior notes due 2030.
The notes will be senior unsecured obligations of ServiceNow and will accrue interest payable semiannually on March 1 and September 1 of each year, beginning on March 1, 2021, the company says.
The notes will mature on September 1, 2030 and the offering is expected to close on August 11, 2020, subject to customary closing conditions.
Net proceeds from the offering will be approximately $1.481 billion, NOW estimates, after deducting the underwriting discount and estimated offering expenses that it will need to pay.
The proceeds will be used to (i) to repurchase for cash up to $500 million aggregate principal amount of its outstanding 0% convertible senior notes due 2022 and (ii) for working capital and other general corporate purposes.
Pending the application of the net proceeds, ServiceNow says that it expects to invest the net proceeds in short-term, interest-bearing instruments or other investment-grade securities.
On August 7 Moddy’s assigned a Baa1 senior unsecured issuer rating to ServiceNow, which it says reflects the company’s track record of solid organic growth driven by product innovation and its position as the market leader in the IT Service Management (ITSM).
That’s on top of ServiceNow’s strong liquidity with $3.1 billion in cash and investments and expectation for growth in free cash flow to about $1.5 billion over the next 12 to 18 months. Plus Moody’s adds that its growing backlog of contracted revenues ($7 billion of remaining performance obligations) provides good visibility into revenues and operating cash flow.
Shares in NOW fell 1.2% in Thursday’s trading after the software company launched its debt offering. However the stock has now climbed 52% on a year-to-date basis and analysts have a bullish Strong Buy stock consensus and average analyst price target of $480 (12% upside potential).
“With our and likely consensus estimates for rev, billings and margins moving up we increase our PT to $510 (15x CY22E rev)” cheered RBC Capital analyst Alex Zukin on July 30, noting that “NOW reported strong 2Q20 earnings highlighted by 30%+ cRPO growth and new business ahead of plan.”
Not only does Zukin see NOW gaining share and strength during the pandemic as a central digital change agent for customers, but he also sees multiple large incremental TAMs (total addressable markets), owing to NOW’s platform, serving as a durable high efficiency tailwind for the company over the next few years. (See NOW stock analysis on TipRanks).
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