Brean Capital Raises Price Target on Workday (WDAY) to $62; Reiterates Sell
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Brean Capital maintained a Sell rating on Workday (NYSE: WDAY), and raised the price target to $62.00 (from $55.00), following the company's 2Q earnings report. WDAY's F2Q billings grew 38%, beating Street growth estimates of 35%. Much of the billings upside was driven by strong sequential growth in short-term deferred revenue. Overall, Brean Capital believes that WDAY's business is benefiting from reacceleration in its core HCM business, solid execution in the international markets and solid traction for the Financials application in the mid-market.
Analyst Yun Kim commented, "WDAY reported what we believe to be a high quality F2Q billings beat that was driven by a strong sequential increase in short-term deferred revenue (vs. professional services or long-term deferred revenue upside). Its F3Q and FY17 guidance was modestly better than expected, reflecting some of the upside in Q2 billings. Our calculations indicate some level of conservatism was built into its guidance. With its core human capital management (HCM) business reaccelerating, international market expansion progressing well and mid-market customers adopting Financial product, we think these positive trends could provide enough growth catalysts for the company to make its FY17 billings target without having to gain sizable traction for the Financials product within the large enterprise market, which we believed was the case in the beginning of the year. However, we believe that the current Street's next year (FY18) billings growth estimate of 28% needs its Financials business to gain traction in the enterprise market. Hence, we believe Street's FY18 billings growth estimate of 28% could be at risk. While we remain optimistic regarding WDAY's long-term fundamental growth prospects, we continue to be cautious in the near term. With shares representing one of the highest valuation multiples in the software industry, we believe risk/reward remains unfavorable. Maintain Sell but raising our TP to $62 from $55."
Shares of Workday closed at $79.65 yesterday.
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Create E-mail Alert Related CategoriesAnalyst Comments, Analyst EPS Change, Analyst EPS View, Analyst PT Change
Related EntitiesEarnings, Brean Capital
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