On Friday, Piper Sandler adjusted its outlook on Workday (NASDAQ:WDAY), a leading provider of enterprise cloud applications for finance and human resources, by reducing its price target from $330.00 to $280.00. Despite this change, the firm maintained its Overweight rating on the shares.
The revision comes amid concerns about potential growth challenges for Workday. The company's three-year subscription growth target of 17-19% is now seen as being at risk due to increasing macroeconomic headwinds. These headwinds have led to a reduction in the full-year growth forecast to the lower end of the previously stated range.
The analyst from Piper Sandler expressed disappointment in the revised outlook, noting that it has eroded confidence in the company's growth potential. The anticipated growth offsets from cross-selling, bundling, international expansion, and partner co-selling are not expected to be strong enough to counter the negative impact of a more challenging macroeconomic environment.
As a result, subscription estimates for the current and following year have been lowered, taking into account the tougher macro conditions and the pressures on renewals due to headcount issues.
The new price target of $280 reflects these revised estimates and a lower enterprise value to free cash flow (EV/FCF) multiple of 23 times, down from 24 times. This adjustment also accounts for the higher execution risks and uncertainties surrounding Workday's AI model.
InvestingPro Insights
Workday (NASDAQ:WDAY) has been navigating a complex market landscape, and recent data from InvestingPro provides a nuanced perspective on the company's financial health and market valuation. With a market capitalization of $69.21 billion and a P/E ratio standing at 49.61, Workday presents an interesting case for investors considering its position in the technology sector. Notably, the company's revenue growth over the last twelve months as of Q4 2024 has been 16.78%, reflecting a steady increase despite the macroeconomic challenges cited by Piper Sandler.
InvestingPro Tips highlight that Workday holds more cash than debt on its balance sheet, which can be a reassuring sign for investors concerned about the company's financial resilience. Additionally, Workday is trading at a low P/E ratio relative to near-term earnings growth, which could indicate that the stock is undervalued in terms of its future earnings potential. This aligns with the company's robust gross profit margin of 75.6% over the same period, underscoring its ability to maintain profitability.
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