DA Davidson has adjusted its price target for Workday (NASDAQ: NASDAQ:WDAY), a leading provider of enterprise cloud applications for finance and human resources, from $255 to $270, while keeping a Neutral rating on the stock.
The change follows Workday's second-quarter fiscal year 2025 performance, which exceeded expectations, and the company's updated midterm financial outlook.
The company's management has revised its strategy in light of what it perceives as a new normal in the current spending environment. They intend to adopt a more targeted approach towards investments that will support product innovation and go-to-market (GTM) initiatives. This shift is expected to pave the way for increased profitability and mid-teens growth in fiscal years 2026 and 2027.
Workday's recent quarter showcased notable achievements, particularly in the public sector and healthcare verticals, where the company experienced positive momentum. Additionally, there was a significant increase in new business generated through partners. These factors contributed to the firm's decision to raise the price target.
The analyst from DA Davidson cited the updated midterm outlook as the focal point for investors, indicating a clear path to higher profitability. The firm's maintained Neutral rating reflects a balanced view of the stock's potential in light of the recent developments.
In other recent news, Workday has been the subject of attention from financial analysts and investors alike. The company's second-quarter financial performance exceeded expectations, with adjusted earnings per share reported at $1.75 and revenue of $2.09 billion, marking a 16.7% increase year over year. Despite this, the company's future guidance fell short of investor expectations, with a projected third-quarter subscription revenue of $1.955 billion, indicating 16% growth, and a maintained full-year subscription revenue guidance of $7.700 billion to $7.725 billion, a 17% increase year over year.
Citi recently updated its stance on Workday, increasing the price target to $274 while maintaining a Neutral rating. The adjustment was based on Workday's latest earnings report and a slight improvement in the fiscal year operating margin guidance. However, Citi remains neutral due to the current difficult deal-making environment and sees a balanced risk-reward scenario.
Workday's management provided a new mid-term outlook, revising growth expectations for fiscal years 2026-2027 from 17-19% down to 15% or higher. They also projected a quicker margin increase to 30% by the end of FY27. This updated margin guidance arrived earlier than anticipated, shifting the debate towards the sustainability of mid-teens growth.
InvestingPro Insights
As Workday (NASDAQ:WDAY) navigates a changing economic landscape, real-time data from InvestingPro offers valuable context for investors. The company boasts a solid market capitalization of $61.3 billion, which speaks to its significant presence in the enterprise cloud application space. With a P/E ratio of 40.99 and an adjusted P/E ratio for the last twelve months as of Q1 2023 at 40.63, Workday is trading at a high earnings multiple, a reflection of investor confidence in its future growth prospects.
InvestingPro Tips highlight that Workday holds more cash than debt on its balance sheet, providing it with a strong liquidity position to fund its strategic investments. Moreover, the company is a prominent player in the software industry, which is underscored by its revenue growth of 17.01% over the last twelve months as of Q1 2023. This growth momentum is further evidenced by a gross profit margin of 75.64%, showcasing the company's ability to maintain profitability amidst its expansion efforts.
For investors seeking additional insights, there are over 10 more InvestingPro Tips available, which include analysis on Workday's low price volatility and valuation multiples. These tips can be further explored to gauge Workday's performance and positioning within the industry. For a deeper dive into these metrics and to uncover more tips, visit the InvestingPro platform.
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