Wednesday - Needham has increased its stock price target for Dayforce (NYSE: DAY), a human capital management software company, to $95 from the previous target of $82, while keeping a Buy rating on the shares. Needham's decision follows the insights gained from Dayforce's recent analyst day, where the company outlined its strategy to achieve $5 billion in revenue and a $1 billion free cash flow (FCF) margin at 20%.
The company plans to grow by targeting larger customers and enhancing its go-to-market (GTM) strategy. This includes cross-selling modules more effectively, aiming for half of its bookings to come from these sales, which would increase the average contract size.
The adoption of higher-margin human capital management (HCM) solutions is expected to improve gross margins (GM) and contribute to a steady annual increase in adjusted EBITDA margins by 100 to 150 basis points.
Dayforce also presented its product Flex (NASDAQ:FLEX) Work, which has been well-received in its initial phase. The current focus on product innovation involves artificial intelligence (AI) automation, with Dayforce aiming to add multiple new agents to work alongside the existing copilot feature.
While the growth components and free cash flow commentary were received positively, Needham noted that strong traction with Flex Work could pose a potential headwind to FCF margins due to its lower gross margin profile. Despite this, the overall outlook for Dayforce remains optimistic as the company continues to expand its offerings and market reach.
In other recent news, Dayforce reported a 16.6% year-over-year increase in total revenue for the third quarter, surpassing consensus expectations. This growth was partially fueled by $45.6 million in float revenue.
The company's adjusted EBITDA for the quarter was $126 million, slightly above consensus estimates. Moreover, Dayforce announced amendments to its corporate bylaws and a change in its fiscal year end, along with a plan to repurchase up to $500 million of its common stock.
Various financial firms have updated their stance on Dayforce. TD Cowen maintained a Hold rating and a consistent price target of $74.00, stating that the upcoming Investor Day is not expected to significantly influence the company's stock.
BMO Capital Markets increased the stock price target to $80, maintaining an Outperform rating. JPMorgan raised its price target for Dayforce to $63, while KeyBanc initiated coverage on Dayforce, setting an Overweight rating and a price target of $70.00.
These recent developments provide investors with an updated view of Dayforce's operations and financial status. The company's ability to meet its long-term goals by the fiscal year 34 is seen as a potential factor that could influence future expectations and stock performance.
InvestingPro Insights
Recent data from InvestingPro adds depth to Needham's optimistic outlook on Dayforce. The company's impressive gross profit margin of 49.65% for the last twelve months as of Q3 2024 aligns with Needham's expectation of improving margins through the adoption of higher-margin HCM solutions. This is further supported by an InvestingPro Tip highlighting Dayforce's "impressive gross profit margins."
The company's growth strategy seems to be yielding results, with revenue growth of 16.85% over the same period. An InvestingPro Tip suggests that "net income is expected to grow this year," which could contribute to the company's ambitious $5 billion revenue and $1 billion FCF margin goals.
While Dayforce's P/E ratio stands at a high 233.69, the PEG ratio of 0.2 indicates that the stock might be undervalued relative to its growth prospects. This aligns with another InvestingPro Tip stating that Dayforce is "trading at a low P/E ratio relative to near-term earnings growth."
For investors seeking more comprehensive analysis, InvestingPro offers 13 additional tips on Dayforce, providing a deeper understanding of the company's financial health and market position.
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