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Workday's Product Suite Impressive: Time to Hold the Stock?

Zacks Equity Research

On Nov 30, we issued an updated research report on Workday Inc. WDAY, a Pleasanton, CA-based provider of enterprise-level software solutions for financial management and human resource domains.

Notably, strong demand for the company’s products is expanding its customer base, which in turn is proving to be beneficial for its top line. Revenues surged 34.3% on a year-over-year basis to $555.4 million in third-quarter fiscal 2018.

The impressive revenue growth resulted in better-than-expected non-GAAP earnings of 24 cents per share, much higher than 5 cents per share reported in the year-ago quarter. Additionally, annual customer satisfaction rating was 98%, which was better than management’s target of 95%.

Workday stock has gained 55.9% year to date, substantially outperforming the 29.8% rally of the industry it belongs to.

Key Growth Catalysts

During fiscal third-quarter 2018, Workday’s HCM solution was selected by the likes of Lowe’s Corporation LOW, M&T Bank Corporation, Lloyds Bank plc, Software AG and Oshkosh Corporation OSK. Moreover, Dell USA, Coca-Cola Company and Cerner Corporation CERN went live during the quarter.

Workday’s financial management customers were up more than 60% from the year-ago quarter with the addition of 37 new names. Its clientele now includes Sanford Health, University of Louisiana and Melco Resort Services.

Workday’s foray into the platform-as-a-service market by launching the Workday Data-as-a-Service Platform is expected to further boost the company’s top line. The availability of Workday Prism Analytics and Workday Benchmarking is anticipated to increase the company’s total addressable market (TAM), with each promising more than $1 billion in revenues.

The company stated that Workday Prism Analytics solution has already been selected by Hitachi, Shelter Insurance and United Technologies Corporation. Per research firm MarketsandMarkets, the HCM market size is anticipated to grow from $14.5 billion in 2017 to $22.5 billion by 2022 at a CAGR of 9.2%. We believe that with a frequently enhanced product suite, the company is well poised to grab the growth opportunity.

Workday, Inc. Revenue (TTM)

Workday, Inc. Revenue (TTM) | Workday, Inc. Quote

Zacks Rank

Workday has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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