Needham has maintained its Buy rating on Workday (NASDAQ: NASDAQ:WDAY) but reduced the stock's price target to $300 from the previous $350. This adjustment follows the firm's participation in Workday's annual Rising customer conference and its analyst day.
During the customer conference, Workday showcased its new Gen-AI agent/bot based platform named Illuminate, aimed at helping customers accelerate and transform their work with more consumable and realistic use cases.
The analyst day provided insights that reinforced Needham's confidence in Workday's growth prospects, particularly highlighting the company's partner strategy as a significant growth driver.
Needham's analysis suggests that Workday is on track to meet its 15% subscription revenue growth target through the fiscal year 2027. Additionally, the company has set an ambitious goal of approximately 30% for the same fiscal year. If achieved, this growth could categorize Workday shares as a consistent compounder in the near term.
The company's shares are currently trading at roughly 25 times fiscal year 2026 free cash flow estimates, with a price-to-earnings to free cash flow growth ratio (P/E/FCFg) of approximately 0.9. This valuation is compared to the sector's standard, which typically trades between 1.0x and 1.2x free cash flow growth.
In other recent news, Workday reported a 17% increase in subscription revenue, reaching $1.903 billion, and revised its revenue growth forecast to 15%. The company also set ambitious financial goals for FY27, including an operating cash flow margin of 34% and a free cash flow margin of 30%.
Analyst firms Piper Sandler, CapitalOne, UBS, BofA Securities, and JPMorgan maintained their respective ratings and price targets for Workday. The company announced its intention to acquire Evisort, an AI document intelligence platform, and introduced four new artificial intelligence agents, Recruiter, Expenses, Succession, and Workday Optimize, designed to automate and improve processes in human resources and finance.
InvestingPro Insights
As Workday (NASDAQ:WDAY) continues to innovate and grow, recent data from InvestingPro provides a nuanced view of the company's financial health and market valuation. Workday's market capitalization stands at a robust $65.48 billion, underscoring its significant presence in the software industry. The company's P/E ratio, a measure of its current share price relative to its per-share earnings, is currently 42.59, which is a testament to the high expectations investors have for future earnings growth.
InvestingPro Tips highlight Workday's impressive gross profit margins, which have reached 75.77% in the last twelve months as of Q1 2023. This indicates the company's efficiency in maintaining profitability while managing the costs of goods sold. Moreover, Workday's liquid assets exceed its short-term obligations, providing financial stability and the ability to invest in growth opportunities. For those interested in further analysis, InvestingPro offers additional tips on Workday's financial performance and market potential.
Lastly, it's worth noting that analysts have revised their earnings upwards for the upcoming period, reflecting optimism about Workday's prospects. There are currently 25 additional InvestingPro Tips available for Workday, providing deeper insights for investors considering this prominent player in the software industry.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.