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Workday (WDAY) to Report Q1 Earnings: What's in the Offing?

Zacks Equity Research

Workday, Inc. WDAY is scheduled to report first-quarter fiscal 2020 results on May 28. Notably, the company has surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average positive surprise of 45.2%.

Past-Quarter Performance

In the last reported quarter, Workday delivered non-GAAP earnings of 41 cents per share, which beat the Zacks Consensus Estimate by 9 cents. The figure also improved 46.4% year over year.

Strong growth can primarily be attributed to a rise of 35.4% in revenues, which totaled $778.6 million. The figure outpaced the Zacks Consensus Estimate for revenues of $776.8 million.

What to Expect in Q1?

For first-quarter fiscal 2020, Workday anticipates subscription revenues in the range of $692-$694 million (up approximately 33%). Professional services revenues are projected at $120 million.

The Zacks Consensus Estimate for revenues is pegged at $814.7 million, indicating an improvement of approximately 31.74% from the year-ago quarter.

We note that the Zacks Consensus Estimate for earnings has remained unchanged in the past week. The Zacks Consensus Estimate for the quarter under review is pegged at 41 cents per share, suggesting growth of around 24.2% from the year-ago quarter’s reported figure.

Notably, Workdaystock has returned 56.9% in a year’s time, substantially outperforming the industry’s rally of 18.3%.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

Workday is leaving no stone unturned to enhance customer experience by adding extended capabilities and tools in Workday HCM and Workday Financial Management in order to bolster adoption.

The incremental adoption of the offerings is expected to favor top-line growth in the to-be-reported quarter. We believe improving customer satisfaction rate is another positive.

In fact, Workday ended the quarter with more than 2,600 customers. During the fourth quarter, the company added Bank of Caterpillar, A.P. Moller-Maersk, Wyndham Worldwide Operations and Sumitomo Chemical as new HCM customers. Notably, Siemens AG, McKesson Corporation, and Lloyds Bank Plc, were a few companies to recently deploy HCM solution.

Additionally, the growing clout of Workday Cloud Platform, Workday Prism Analytics and Workday Marketplace bode well.

Partnerships with Duo Security and SkipFlag are also anticipated to aid Workday in expanding business in the to-be-reported quarter.

The company is also projected to benefit from the synergies of Adaptive Insights acquisition. The purchase is likely to aid Workday to evolve as a provider of enterprise-level software solutions for financial management and human resource domains.

Further, these acquisitions are likely to enhance and expand machine learning (ML), AI and data analytics capabilities to drive customer satisfaction, which in turn will positively impact the upcoming quarterly results.

Moreover, strong focus on product innovation and higher investments in introducing products is expected to provide the company a competitive edge against its peers, which in turn is likely to impact the top line in the to-be-reported quarter.

However, intensifying competition from peers and higher marketing expenditure are major headwinds at least in the near term.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Workdayhas a Zacks Rank #3 and an Earnings ESP of 0.00%. This combination makes surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some stocks, which you may consider as our model shows that these have the right combination of elements to post an earnings beat in its upcoming release:

Target Corporation TGT has an Earnings ESP of +2.26% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Intuit Inc. INTU has an Earnings ESP of +0.57% and a Zacks Rank #2.

Dorian LPG Ltd. LPG has an Earnings ESP of +20.00% and a Zacks Rank #2.

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