On Thursday, Goldman Sachs (NYSE:GS) adjusted its outlook on Workday (NASDAQ:WDAY) shares, increasing the price target to $305 from the previous $300, while reiterating a Buy rating on the stock. The firm's decision came after Workday's Analyst Day, where the company confirmed its mid-term growth and operating margin targets, aligning with analyst expectations, and improved its long-term free cash flow margin guidance.
Workday's stock remained unchanged on Wednesday after the company reiterated its commitment to achieving a mid-term growth rate of 15% and an operating margin (OPM) target of 30%. These figures were initially updated in the second fiscal quarter of 2025 and are consistent with current market expectations. Additionally, Workday updated its fiscal year 2027 free cash flow (FCF) guidance, raising the margin target to 30% from the previously stated 25%, which matches the consensus estimate.
Goldman Sachs expressed confidence in Workday's ability to meet these updated targets. The firm underscored that these goals were set during a period of constrained IT spending, suggesting that if spending increases, Workday's performance could surpass expectations.
The analysis identified several factors that could contribute to mid-term growth outperformance, including momentum in Financial Management Solutions (FINS) and full suite sales, expansion of the partner ecosystem, tapping into new international markets, and delivering AI-driven productivity benefits to customers.
The report also highlighted the potential for Workday to exceed its operational margin and free cash flow guidance. This optimism is based on the company's scaling partner ecosystem, strategic hiring in lower-cost regions, potential internal AI efficiencies, and disciplined approach to mergers and acquisitions. Despite trading at 27 times the calendar year 2025 free cash flow, below the average of 33 times for peers that meet the Rule of 40 criteria, Goldman Sachs sees this as an unwarranted discount given Workday's robust AI strategy and leading data sets in HR and FINS.
Goldman Sachs believes that Workday's business is well-defended with diverse opportunities for upside, positioning the company to potentially achieve $20 billion in revenue with 30-35% operating margins.
In other recent news, Workday Inc . has seen a flurry of activity with a focus on expanding its AI capabilities and financial performance. The company reported a 17% increase in subscription revenue, totaling $1.903 billion, and updated its revenue growth forecast to 15%. For the fiscal year 2027, Workday has set ambitious financial targets, including a 34% operating cash flow margin and a 30% free cash flow margin.
Workday has also made significant strides in AI innovation, with the acquisition of Evisort, an AI-powered contract management platform, and the launch of four new AI agents: Recruiter, Expenses, Succession, and Workday Optimize. The company's AI strategy is further bolstered by Workday Ventures' recent investment in 10 new AI companies, aiming to enhance productivity and decision-making in the workplace.
Analysts have taken note of these developments. KeyBanc Capital Markets reiterated an Overweight rating, Loop Capital maintained a Hold rating, and both BMO Capital Markets and Oppenheimer maintained an Outperform rating. Workday also welcomed Rhonda J. Morris, Chevron Corporation (NYSE:CVX)'s vice president and chief human resources officer, to its Board of Directors, starting early 2025.
InvestingPro Insights
Following Goldman Sachs' optimistic analysis, InvestingPro data reinforces the positive sentiment surrounding Workday's financial health and market position. With a robust market capitalization of $65.57 billion and a revenue growth rate of 17.07% in the last twelve months as of Q2 2025, Workday exhibits a strong performance trajectory. The company's gross profit margin stands impressively at 75.77%, indicating efficient operations and a solid competitive edge in the software industry.
InvestingPro Tips highlight that Workday holds more cash than debt, providing a cushion for strategic initiatives and weathering economic fluctuations. Additionally, the significant number of analysts revising earnings upwards for the upcoming period signals market confidence in Workday's growth potential. These insights, coupled with the company's ambitious revenue and operating margin targets, paint a promising picture for potential investors. For those looking for a deeper dive, InvestingPro offers over 10 additional tips to further evaluate Workday's investment potential.
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