Workday Inc (NASDAQ: WDAY) shares dropped 12.8% on Wednesday after the company held its analyst day event this week. Wall Street analysts came away from the event concerned about Workday’s ability to monetize its latest products and meet consensus earnings and revenue targets in the near term.
Here’s a sampling of what they’ve had to say.
Wells Fargo analyst Philip Winslow said the event was yet another sign Workday has more work to do. The company’s financial solutions appear to be gaining traction, but Winslow said the story will simply need more time to play out.
“While we are encouraged by Workday’s ongoing product innovation, growing portfolio breadth, and performance across HCM along with its early traction within Financials (despite a nascent vertical strategy), we believe this optimism is reflected in the stock’s valuation with shares trading at an EV/NTM Recurring Revenue multiple of 13.1x versus the broader SaaS software sector’s multiple of 9.4x,” Winslow wrote in a note.
UBS analyst Jennifer Swanson Lowe said the event highlighted the company’s impressive product innovation, but also highlighted the risk in relying more heavily on financials.
“We also see downside risk to current consensus for FY21 as estimates calling for subscription growth >24% may prove aggressive with US HR growth maturing on already-high adoption levels while Financials growth is healthy at 50% but still only represents ~20% of the base," she wrote in a note.
Swanson Lowe said Workday’s business model appears healthy, but there may be downside risk to the stocks earnings multiple as revenue growth slows.
Mizuho analyst Siti Panigrahi remains confident that Workday will ultimately establish itself as a back-office application market leader.
“We are incrementally more positive on Workday's long-term strategy and short-term execution capabilities after attending its analyst day during the conference,” Panigrahi wrote.
He said HR revenue will likely continue to grow at around 20%, while financial revenue growth should accelerate to a 50% growth rate.
Ratings And Price Targets
- Wells Fargo has a Market Perform rating and $210 target.
- UBS has a Sell rating and $160 target.
- Mizuho has a Buy rating and $225 target.
The stock traded around $157.82 per share at time of publication.
The wide range of analyst ratings and price targets should tell investors all they need to know about the uncertain outlook for Workday. While analysts seem mostly positive on the company’s underlying business, the potential for market upside/downside based on the stock’s current valuation is open to interpretation.
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Photo courtesy of Workday.
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