Morgan Stanley says investors should consider putting their money in ServiceNow , a software stock poised to become one of the best free cash flow growth stories in its sector. Analyst Keith Weiss named the stock a top pick, moving away from the bank’s previous focus on Salesforce . Weiss cited ServiceNow’s “best-in-class unit economics” and strong positioning among the reasons for the sentiment shift. “Transition from System of Record in IT to System of Action bridging multiple systems across the enterprise significantly broadens the growth opportunity, and along with best in class unit economics, underpins our confidence in durable 30%+ FCF growth in FY23/FY24,” Weiss wrote in a note to clients Thursday. Weiss also views ServiceNow as well positioned to capitalize on a large and growing market. “The ServiceNow workflow automation platform hits a sweet spot with organizations looking to optimize their business processes and addresses ~$175 billion in market opportunity, where the company has just 4% share today,” he said. Shares of ServiceNow have come under pressure this year, falling 36.5%. Morgan Stanley’s $520 price target suggests the stock could, however, gain 26% from Wednesday’s close. “With current unit economics capable of supporting > 40% operating margins as growth slows, the combination of strong execution to a large (and growing) TAM with significant room for margin expansion should yield one of the best FCF growth stories in software,” Weiss wrote. — CNBC’s Michael Bloom contributed reporting
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