On Wednesday, Piper Sandler adjusted its stance on Workday stock, moving from an Overweight rating to a Neutral position. The firm also revised its price target downward to $270 from the previous $285. This decision comes in light of Workday's guidance indicating that calculated remaining performance obligations (cRPO) growth is expected to decline for the fifth consecutive quarter, reaching 14% compared to 21.9% in the third quarter of 2024.
The analyst from Piper Sandler expressed concerns about Workday's growth prospects, stating that the continuous decline in cRPO growth has diminished confidence in the company's ability to rebound next year. The firm has subsequently reduced its forecast for fiscal year 2026 growth to 12.5% from an earlier estimate of 14%. The analyst highlighted that until Workday's international expansion, new product introductions, and partner growth begin to significantly contribute, the firm would take a more cautious approach.
Despite the potential for margin expansion to 27.5% in fiscal 2026, which could support over 15% growth in earnings per share, the analyst finds it challenging to justify Workday's valuation multiple in comparison to growth at a reasonable price (GARP) peers. The current calendar year 2026 price-to-earnings (P/E) multiple stands at 28 times, with a GAAP P/E of 70 times.
The report from Piper Sandler suggests a sense of "growth fatigue" regarding Workday, with the firm opting to move to the sidelines. This decision is made even in the context that the first quarter might mark the lowest point for the company's performance. The price target has been adjusted to reflect lower estimated earnings and a reduced valuation multiple.
Piper Sandler concluded by indicating a preference for other stocks in the sector, specifically naming Adobe Inc. (NASDAQ: NASDAQ:ADBE), Veeva Systems Inc. (NYSE: NYSE:VEEV), and Salesforce.com Inc. (NYSE: NYSE:CRM) as more favorable options compared to Workday at this time.
In other recent news, Workday Inc (NASDAQ:WDAY). has reported a noteworthy third quarter of fiscal 2025, with a 16% increase in subscription revenue to $1,559 million. The robust performance was attributed to the company's focus on artificial intelligence (AI) innovation, strategic partnerships, and market expansion. The company's AI solutions were involved in over 30% of customer expansions, and Workday launched Illuminate, a next-generation AI platform.
Workday's total revenue also rose by 16% to reach $2,160 million, and a non-GAAP operating margin of 26.3% was maintained. The company ended the quarter with $7.2 billion in cash and marketable securities. A 15% increase in the 12-month subscription revenue backlog was reported, reaching $6,980 million.
Looking ahead, Workday anticipates a subscription revenue of approximately $8.8 billion for FY 2026. There were also 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 financial metrics and market position offer additional context to Piper Sandler's analysis. According to InvestingPro data, Workday boasts a market capitalization of $71.3 billion and impressive gross profit margins, with the latest figure standing at 75.77% for the last twelve months as of Q2 2025. This aligns with one of the InvestingPro Tips highlighting Workday's "impressive gross profit margins."
The company's P/E ratio of 46.28 and Price / Book ratio of 8.54 support Piper Sandler's observation about Workday's high valuation multiples. An InvestingPro Tip notes that Workday is "trading at a high earnings multiple," which corroborates the analyst's concerns about justifying the company's valuation relative to its growth prospects.
Despite the growth concerns raised by Piper Sandler, Workday has shown a strong revenue growth of 17.07% over the last twelve months, with revenue reaching $7.86 billion. Additionally, an InvestingPro Tip indicates that Workday "holds more cash than debt on its balance sheet," suggesting financial stability that could support future growth initiatives.
For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for Workday, providing a deeper understanding of the company's financial health and market position.
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