On Friday, Citi updated its stance on Workday, Inc. (NASDAQ:WDAY), increasing the price target to $274 from the previous $255, while maintaining a Neutral rating on the stock. The adjustment follows Workday's latest earnings report, which revealed a slight exceedance of expectations and a consistent forecast for subscription revenue. The company also announced a slight improvement in the fiscal year operating margin (OM) guidance by 25 basis points.
Workday's forward-looking indicators showed some weakness, with billings falling short and third-quarter calculated remaining performance obligations (cRPO) growth anticipated to be between 14-15% year-over-year, compared to the consensus expectation of 15.6%. These figures reflect the ongoing economic challenges affecting the market.
Management at Workday provided a new mid-term outlook, revising growth expectations for fiscal years 2026-2027 from 17-19% down to 15% or higher. However, they also projected a quicker margin increase to 30% OM by the end of FY27, which is more optimistic than the previous 25%+ forecast. According to Citi's analysis, this updated margin guidance was something bullish investors had hoped for and arrived earlier than anticipated, shifting the debate towards the sustainability of mid-teens growth.
Despite these updates and the positive shift in margin expectations, Citi remains neutral on Workday's shares. The firm cites the current difficult deal-making environment and sees a balanced risk-reward scenario, with the stock trading at 26 times the calendar year 2025's estimated enterprise value to free cash flow (EV/FCF).
In other recent news, Workday Inc . has reported a second-quarter performance exceeding analyst expectations, with adjusted earnings per share of $1.75 and revenue of $2.09 billion.
This revenue figure marks a 16.7% increase year over year. Despite these strong results, the company's future guidance has not met investor expectations. Workday anticipates a third-quarter subscription revenue of $1.955 billion, indicating a 16% growth, and maintains its full-year subscription revenue guidance of $7.700 billion to $7.725 billion, a 17% increase year over year.
The company's 12-month subscription revenue backlog has grown 16.1% year over year to $6.80 billion, while total subscription revenue backlog increased 20.9% to $21.58 billion. Additionally, Workday has slightly raised its expectation for fiscal 2025 non-GAAP operating margin to 25.25% and announced a new $1.0 billion share repurchase program.
InvestingPro Insights
With Workday, Inc. (NASDAQ:WDAY) capturing investor attention following Citi's updated price target, real-time data from InvestingPro offers further insights into the company's financial health and market performance. Workday holds more cash than debt, which is a positive indicator of the company's balance sheet strength, and analysts predict that the company will be profitable this year, reinforcing the positive outlook on its bottom line.
However, it's worth noting that Workday is trading at a high earnings multiple with a P/E ratio of 40.99, suggesting a premium valuation compared to the market. The company's stock has also experienced low price volatility, which might appeal to investors looking for stability in the software industry. In terms of growth, Workday has shown a solid revenue increase of 17.01% over the last twelve months as of Q1 2025, signaling healthy business expansion.
For investors seeking more comprehensive analysis, there are additional InvestingPro Tips available on the platform, including insights on Workday's valuation multiples, liquidity position, and profitability metrics. To explore these further, visit the dedicated page for Workday on InvestingPro: https://www.investing.com/pro/WDAY.
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