On Friday, Wells Fargo (NYSE:WFC) updated its outlook on Workday (NASDAQ:WDAY) stock, increasing the price target to $300 from the previous $260 while maintaining an Overweight rating.
The adjustment follows Workday's second fiscal quarter performance, which preempted analysts' expectations for the company's annual Rising event.
Workday's shift towards delivering higher margins and a revised mid-term framework for approximately 15% growth and around 30% operating margin by fiscal year 2027 is anticipated to drive a meaningful re-rating of the shares.
Workday has raised its total revenue guidance by approximately $30 million due to outperformance in its Professional Services (PS) segment, although it reiterated its fiscal year 2025 subscription revenue forecast of $7.700-7.725 million. Additionally, the company increased its free cash flow (FCF) margins and operating margins by 1% and 0.25%, respectively.
The more significant update, however, came with the revised mid-term targets, now aiming for a 30% operating margin and around 15% subscription revenue growth by fiscal year 2027, adjusted from previous targets of over 25% operating margin and 17-19% subscription revenue growth.
This strategic update has led to a substantial upward revision of out-year earnings per share (EPS) and free cash flow estimates for Workday. The company's focus on improving margins is expected to be further emphasized at its Analyst Day (A/D) event. The new financial targets and the company's performance are poised to shape investor expectations and influence the stock's valuation moving forward.
In other recent news, Workday Inc . has seen significant developments. BMO Capital Markets maintained an Outperform rating and a $300.00 price target for Workday's shares, citing the company's raised fiscal year 2027 EBIT target to 30% from a previous target of over 25%.
BofA Securities, Jefferies, Evercore ISI, DA Davidson, and Citi have all adjusted their price targets for the company, reflecting confidence in Workday's financial outlook.
Workday's second-quarter fiscal year 2025 performance exceeded expectations, reporting adjusted earnings per share of $1.75 and revenue of $2.09 billion, a 16.7% increase year over year. However, the projected third-quarter subscription revenue of $1.955 billion and maintained full-year subscription revenue guidance of $7.700 billion to $7.725 billion did not meet investor expectations.
Analysts from these firms have noted Workday's revised strategy to support product innovation and go-to-market initiatives, expecting this to drive mid-teens growth in fiscal years 2026 and 2027.
Workday's 12-month subscription revenue backlog grew 16.1% year over year to $6.80 billion, while the total subscription revenue backlog increased 20.9% to $21.58 billion. The company also announced a new $1.0 billion share repurchase program.
InvestingPro Insights
Workday's (NASDAQ:WDAY) financial health and market performance offer a mixed picture that investors may want to consider. With a substantial market capitalization of $61.3 billion, Workday stands as a prominent player in the software industry. Two notable InvestingPro Tips highlight the company's strong balance sheet, as Workday holds more cash than debt, and its liquid assets exceed short-term obligations, suggesting a solid financial position. However, the stock is trading at a high earnings multiple, with a P/E ratio of 40.99, reflecting a premium valuation in the market.
The company's revenue growth remains robust, with a 17.01% increase in the last twelve months as of Q1 2023, and a slightly higher quarterly growth rate of 18.17%. This aligns with Workday's updated guidance and targets for fiscal year 2027. Furthermore, Workday's gross profit margin is impressive at 75.64%, indicating the company's ability to maintain profitability in its operations.
In terms of stock performance, Workday's price has experienced some volatility, with a 1-month total return of 2.23% but a decline of 24.45% over the last six months. Investors looking for additional insights will find a wealth of information on Workday, as there are 11 more InvestingPro Tips available at https://www.investing.com/pro/WDAY, which could help in making more informed investment decisions.
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