On Friday, BofA Securities adjusted its outlook on Workday (NASDAQ:WDAY), a leader in enterprise resource planning (ERP) software. The firm increased the price target to $310 from the previous target of $265 while maintaining a Buy rating on the stock.
The adjustment follows Workday's announcement of a stronger financial outlook for fiscal year 2027, with an expected margin increase to 30% from the previous forecast of over 25%. This improvement is attributed to the potential scale and leverage achievable through Workday's extensible applications and development platform, as well as its top-tier distribution channel within the ERP sector.
Despite the positive margin outlook, Workday's subscription growth forecast for fiscal years 2026 and 2027 has been moderated to mid-teens, a decrease from the earlier projection of 17% to 19%. This revision aligns with a more conservative growth trajectory but is seen as a trade-off for a more robust free cash flow (FCF) growth profile.
The anticipated FCF growth is notable, with a compound annual growth rate (CAGR) of 27% expected over the two-year period from fiscal year 2026 to 2027. BofA Securities suggests that the updated financial targets provide a more secure expectation for top-line growth, balancing the company's growth prospects with financial stability.
Workday's strategic positioning and financial metrics continue to draw attention from investors seeking growth in the technology sector, particularly in enterprise software solutions. The revised price target reflects confidence in the company's ability to grow and scale efficiently in the coming years.
In other recent news, Workday Inc . has seen a series of significant developments. Analysts from major firms Jefferies, Evercore ISI, DA Davidson, and Citi have adjusted their price targets for the company's shares. Jefferies raised its target to $350, Evercore ISI to $310, DA Davidson to $270, and Citi to $274. All firms continue to maintain positive ratings for the company's stock.
Workday's second-quarter fiscal year 2025 performance exceeded expectations, reporting adjusted earnings per share of $1.75 and revenue of $2.09 billion, marking 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.
The company'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. Workday also announced a new $1.0 billion share repurchase program.
InvestingPro Insights
Workday (NASDAQ:WDAY) has caught the eye of BofA Securities, and the latest data from InvestingPro reinforces the optimism surrounding the company's financial health and market position. With a robust market capitalization of $61.3 billion, Workday is trading at a high earnings multiple, with a P/E ratio of 40.99, reflecting investors’ high expectations for future earnings growth. This is substantiated by the company's significant revenue growth, posting a 17.01% increase over the last twelve months as of Q1 2023, which is consistent with BofA's confidence in the company's ability to scale.
An InvestingPro Tip that stands out is Workday's ability to hold more cash than debt on its balance sheet, providing a solid foundation for future investments and growth initiatives. Additionally, Workday's gross profit margin of 75.64% showcases its ability to maintain profitability, a key factor for investors. It's noteworthy that analysts predict the company will be profitable this year, and the company has indeed been profitable over the last twelve months.
For investors looking for more detailed analysis, there are 11 additional InvestingPro Tips available on Workday, which delve deeper into the company's financial metrics and market position. These insights can be found at InvestingPro, offering a comprehensive view of the stock's potential and performance.
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