On Friday, TD Cowen adjusted its outlook on Dayforce (NYSE: DAY), lowering the price target to $53 from the previous $63 while maintaining a Hold rating on the company's shares.
The firm revised its revenue projections upwards, primarily due to an increase in expected float and professional services revenue. The new forecasts for fiscal years 2024, 2025, and 2026 now anticipate total revenue growth of 15.4%, 13.9%, and 14.8%, respectively. Excluding float revenue, the growth rates are expected to be 15.0%, 16.6%, and 16.7% for the same periods.
The adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) estimates for fiscal years 2024 and 2026 have been raised in light of the higher revenue projections, including float revenue, and anticipated better leverage on R&D and recurring cloud costs.
The adjusted EBITDA margin is now expected to be 29.1% for FY24 and 32.5% for FY26. However, the estimate for FY25 has been lowered due to a projected increase in SG&A (Selling, General, and Administrative Expenses) spending, resulting in an adjusted EBITDA margin of 30.0%.
Furthermore, the free cash flow (FCF) estimates for Dayforce have been increased, thanks to a higher assumed operating cash flow (OCF) conversion, slightly reduced capital expenditures, and the raised adjusted EBITDA estimates for FY24 and FY26. The firm now models FCF margins of 9.1%, 9.7%, and 11.5% for FY24, FY25, and FY26, respectively.
The revised price target of $53 is based on 4.7 times the estimated CY25 Enterprise Value to Sales (EV/S) or 48 times the Enterprise Value to Free Cash Flow (EV/FCF), according to the firm. This adjustment comes as the company prepares for its upcoming second-quarter earnings report and reflects the latest federal funds rate expectations.
In other recent news, Dayforce has been under the microscope of various financial analysis firms. BMO Capital maintained a positive outlook on the company, citing ambitious growth targets of $5 billion in revenue and $1 billion in free cash flow within an approximate seven-year period.
Meanwhile, CFRA downgraded Dayforce stock from Buy to Hold, expressing concerns about a potential slowdown in revenue growth and high leverage. Despite this, CFRA acknowledged the potential of new products and the company's expansion into international markets.
BMO Capital Markets adjusted its price target for Dayforce to $75, maintaining an Outperform rating. The firm highlighted the company's large global Total Addressable Market and its momentum with enterprises and partners. Mizuho Securities also adjusted its price target for Dayforce to $80, while reaffirming its Buy rating. The firm's FY24 recurring revenue forecast for Dayforce remains at $1,166 million, and it increased its total revenue projection to $1,733 million.
These recent developments suggest that while there are varying perspectives on Dayforce's future performance, there is a consensus about the company's potential for growth. As always, investors are advised to keep a close eye on these and other developments.
InvestingPro Insights
As Dayforce (NYSE: DAY) navigates through its financial journey, the latest metrics from InvestingPro provide a clearer picture of the company's standing. With a market capitalization of $7.78 billion and a high price-to-earnings (P/E) ratio of 147.96, the company's valuation reflects investor expectations for future growth, despite the recent price adjustments from various financial analysis firms.
InvestingPro Tips highlight that Dayforce's net income is expected to grow this year, which aligns with the ambitious growth targets mentioned by BMO Capital. Additionally, the company's impressive gross profit margins, which stand at 48.37% for the last twelve months as of Q1 2024, underscore its efficient operations and potential for profitability. These factors are essential for investors considering the company's outlook amidst the revised price targets.
The revenue growth also remains a strong point for Dayforce, with an 18.97% increase over the last twelve months as of Q1 2024. This positive trajectory supports the upward revision of revenue projections by TD Cowen and reinforces the company's ability to expand its financial footprint.
For investors looking for a more in-depth analysis, there are additional InvestingPro Tips available that shed light on other facets of Dayforce's performance, such as earnings revisions by analysts and valuation multiples. To explore these insights and make informed decisions, investors can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at https://www.investing.com/pro/DAY. With this information at hand, stakeholders can better assess Dayforce's potential in the context of the current financial landscape.
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