Workday Inc. failed to wow Wall Street with its long-term view, and that’s weighing on shares of the software company Thursday.
Nonetheless, numerous analysts saw conservatism in Workday’s
WDAY,
new targets, released Wednesday afternoon, even as they underwhelmed relative to expectations. The company now expects 17% to 19% annual subscription revenue growth through fiscal 2027, along with a 25%-plus adjusted operating margin. Workday’s management had previously been targeting 20%-plus annual subscription revenue growth.
Shares of Workday were off 10% in Thursday morning action.
See more: Peloton stock climbs on Lululemon deal, Workday shares slide on targets, and more stocks on the move
“We think the company is being conservative here and effectively said so as they see no signs of an improving macro environment,” Bernstein analyst Mark Moerdler wrote. “The [pro-forma] operating margin target of over 25% also felt like a low-ball, and we feel Workday could possibly hit this target by next year.”
He gave the stock an outperform rating with a $284 target price.
TD Cowen’s Derrick Wood also saw room for upside in the latest targets. “The take-down on growth & margin expansion is disappointing, but we think new [management] is making the right strategic moves and that targets will prove conservative,” he wrote, while keeping an outperform rating but cutting his target price to $260 from $270.
Read: Dividend Aristocrats may shine again if the Fed causes another bad year for the stock market
William Blair’s Matthew Pfau remained a believer as well, arguing that Thursday’s pullback could represent a buying opportunity.
“Although this resetting of the bar will likely cause the stock to be pressured in the near term, we believe it puts Workday in a good position to exceed expectations over the medium term,” he wrote, while sticking with his outperform call. “We continue to feel good about our investment thesis on Workday and see a potential sell-off as a good opportunity for investors that missed the stock earlier in the year.”
Guggenheim’s John DiFucci, however, was more pessimistic.
“We do not see this guidance as conservative, nor do we expect recent higher growth for either 24-month subscription backlog or cRPO [current remaining performance obligations] to result in higher growth subscription revenue, and we believe management explained why this is so,” he wrote, as he kept a sell rating and $169 target price on the stock.
Read the full article here
