On Wednesday, Morgan Stanley (NYSE:MS) maintained its Overweight rating on Workday (NASDAQ:WDAY) stock, while increasing the price target to $330 from $315. The adjustment follows Workday's recent update to its medium-term outlook, where the company slightly lowered its subscription revenue growth forecast for fiscal years 2026 and 2027.
The company, which had previously projected around a 15% growth rate for the specified period during its Analyst Day in September, has now adjusted its guidance to 14% subscription revenue growth for FY26. This revision has raised concerns among investors, prompting some to support the bearish view that Workday's growth may be structurally hindered by its high market penetration in the core Human Capital Management (HCM) sector.
Despite the lowered forecast, Workday's management has indicated that there has been no deterioration in their underlying business. In fact, they have expressed a more positive sentiment about the company's current state. The Morgan Stanley analyst acknowledged the challenge in understanding the rationale behind management's decision to revise the growth outlook shortly after Analyst Day, but also recognized the inherent value of Workday's core franchise, which may be undervalued at present market prices.
Workday's recent communication appears to be a balancing act between managing investor expectations and highlighting the company's robust fundamentals. The revised guidance and the subsequent price target increase by Morgan Stanley reflect the ongoing dialogue between the company's performance, market expectations, and investor sentiment.
In other recent news, Workday Inc (NASDAQ:WDAY). has been the subject of varying analyst perspectives following mixed third-quarter results. RBC Capital maintained its Outperform rating on Workday, keeping its price target at $300.00. Despite delays in deal start times leading to a reduction in the full-year subscription guidance, RBC analysts were optimistic about the company's long-term prospects, attributing near-term headwinds to temporary factors.
Conversely, Piper Sandler shifted from an Overweight rating to a Neutral stance on Workday, citing anticipated declines in calculated remaining performance obligations (cRPO) growth. The firm lowered its price target to $270 and reduced its fiscal year 2026 growth forecast to 12.5% from 14%.
Workday's third-quarter earnings report highlighted a 16% rise in subscription revenue to $1,559 million and a similar increase in total revenue, reaching $2,160 million. The company's early fiscal year 2026 margin outlook was positive, exceeding consensus expectations. However, the forecast for FY26 subscription growth was set at approximately 14%, a decrease from the first quarter.
Finally, Workday announced leadership changes with Doug Robinson set to retire at the end of the fiscal year, and Rob Enslin joining as President and Chief Commercial Officer. These are among the recent developments at Workday.
InvestingPro Insights
Workday's recent guidance adjustment and Morgan Stanley's subsequent price target increase are complemented by several key financial metrics and insights from InvestingPro. The company's market capitalization stands at $71.3 billion, reflecting its significant presence in the software industry. Workday's impressive gross profit margin of 75.77% for the last twelve months as of Q2 2025 underscores its operational efficiency, aligning with one of the InvestingPro Tips highlighting the company's "impressive gross profit margins."
Despite the lowered growth forecast, Workday's revenue growth remains solid at 17.07% for the same period, with quarterly revenue growth at 16.68% in Q2 2025. This growth, coupled with the company's strong balance sheet—holding more cash than debt—supports Morgan Stanley's optimistic outlook.
The stock's P/E ratio of 46.28 indicates that investors are willing to pay a premium for Workday's earnings, which is consistent with the InvestingPro Tip noting that the stock is "trading at a high earnings multiple." This valuation suggests market confidence in Workday's future prospects, despite the slight downward revision in growth projections.
For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips on Workday, providing a deeper understanding of the company's financial health and market position.
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