Piper Sandler has expressed continued confidence in Workday (NASDAQ: NASDAQ:WDAY), maintaining an Overweight rating and a $285.00 price target on the stock.
The firm's stance comes amid discussions about the company's growth trajectory, which has seen guidance shift from 20% in the fiscal year 2023 to a range of 17-19% for fiscal 2024, and now a forecast of 15% through fiscal 2027.
The analysis by Piper Sandler highlighted three key factors that could contribute to Workday's ability to sustain a 15% compound annual growth rate (CAGR).
These include the potential for further international expansion, which currently makes up 25% of the mix, the tripling of partner contributions to 9% of net new annual recurring revenue (ARR), and the increasing prevalence of full suite bundles, now representing 33% of net new ARR.
Feedback from large customers has been particularly positive regarding Workday as a Platform (WaaP), with a strong interest in developing custom applications and purchasing partner apps on WaaP.
This customer sentiment is a bright spot for the company, as it could play a significant role in future growth.
Despite the adjustments in growth expectations, Piper Sandler suggests that the risk-reward profile for Workday remains favorable.
In other recent news, CapitalOne adjusted its outlook on the company, raising its price target slightly to $291.00, while UBS maintained a neutral position with a $270.00 price target.
BofA Securities held firm on its Buy rating with a $310.00 target, and JPMorgan reaffirmed its Overweight rating with a $285.00 price target. Conversely, Guggenheim maintained a Sell rating with a $200.00 price target.
Workday reported a 17% increase in subscription revenue, reaching $1.903 billion in its recent second-quarter earnings report. The company revised its revenue growth forecast downward to 15% but raised its FY27 adjusted operating margin target to 30%. It also set ambitious financial goals for FY27, including an operating cash flow margin of 34% and a free cash flow margin of 30%.
Workday 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. These agents are part of the Workday Illuminate platform.
Rhonda J. Morris, Chevron Corporation (NYSE:CVX)'s vice president and chief human resources officer, was appointed to Workday's Board of Directors, effective early 2025.
InvestingPro Insights
In support of Piper Sandler's optimistic view on Workday (NASDAQ:WDAY), several metrics and InvestingPro Tips underscore the company's financial health and market position. Workday holds more cash than debt on its balance sheet, a sign of financial stability that investors often find reassuring. With 25 analysts having revised their earnings upwards for the upcoming period, there is a consensus that Workday's financial performance may continue to impress.
From a valuation standpoint, Workday's market capitalization stands at approximately $65.48 billion, reflecting the company's substantial size within the software industry. The firm's gross profit margins are impressive at 75.77% for the last twelve months as of Q1 2023, indicating strong operational efficiency. Additionally, Workday's revenue has grown by 17.07% during the same period, which aligns with the growth trajectory discussed by Piper Sandler.
Investors should note that Workday is trading at a high earnings multiple, with a P/E ratio of 42.59, suggesting high investor expectations for future earnings growth. For those seeking further insights, there are additional InvestingPro Tips available, offering a comprehensive analysis of Workday's financials and market position (https://www.investing.com/pro/WDAY).
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