Monday - Guggenheim has changed its stance on Workday (NASDAQ:WDAY), upgrading the stock from Sell to Neutral. The revision follows a period of adjustment for the company, which maintains a "GOOD" financial health score according to InvestingPro analysis, despite experiencing a shift in growth dynamics.
Workday's subscription revenue growth has decelerated, with an 18.6% increase in FY24 and a 16.7% rise in FY25, based on guidance. This performance is below the company's previous medium-term target of over 20%. The target has since been adjusted down to 15% through FY27.
Workday's share performance also lagged behind the industry benchmark in 2024, with a 6.5% decline compared to the IGV's 23.4% gain. Trading at a P/E ratio of 41.3x, InvestingPro analysis indicates the stock is currently slightly undervalued. Guggenheim acknowledges Workday's quality as a company but notes the lessened priority of large Human Capital Management (HCM) and Financial projects, which has impacted its market position.
Despite the challenging business environment, Guggenheim notes a growing optimism among Workday's partners. Under the leadership of CEO Carl Eschenbach, Workday has made strategic moves to stimulate growth, such as collaborating more closely with partners and targeting small to medium-sized businesses (SMBs).
Analysts at Guggenheim believe that if Workday meets its fourth-quarter guidance, the new Annual Contract Value (ACV) growth for subscription revenues could remain flat in FY26, which they consider the most balanced setup in some time. They also suggest that even with a modest decline in new ACV in FY26, Workday is likely to achieve its targets, potentially with the help of minor acquisitions.
In conclusion, while Guggenheim does not anticipate a significant change in new business trends for Workday this year, they believe that growth expectations have been appropriately recalibrated, warranting the upgrade to a Neutral rating. With 20 analysts recently revising earnings estimates downward and the stock showing mixed signals, investors seeking deeper insights can access comprehensive analysis and 11 additional ProTips through InvestingPro's detailed research reports.
In other recent news, Workday Inc (NASDAQ:WDAY). had its share target upgraded by RBC Capital Markets due to promising prospects. The firm's confidence in Workday's potential was bolstered by a 16.8% revenue growth and a robust liquidity position. Workday's new management has initiated strategies for market expansion, which RBC Capital believes could exceed expectations.
Workday's recent developments include a 16% increase in Q3 subscription revenue, although the fiscal year 2026 subscription growth forecast was adjusted to a slightly lower 14%. Despite these changes, analyst firms TD Cowen and Oppenheimer maintained their positive ratings, while Goldman Sachs reduced its price target but sustained a Buy rating.
Furthermore, Workday is set to join the S&P 500 Index, a significant event reflecting the company's strong market capitalization and liquidity. Piper Sandler analysts, following the 2025 CIO Survey, indicated a strong outlook for IT spending, which could benefit companies like Workday. Lastly, Workday received a sustained Buy rating and a price target of $290.00 from TD Cowen, reflecting confidence in Workday's long-term prospects despite current economic challenges.
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