Workday shares get higher price target after analyst day focusing on cash flow growth potential By Investing.com

On Wednesday, CapitalOne adjusted its rating on Workday (NASDAQ:), a provider of enterprise cloud applications for finance and human resources. The analysts slightly increased their price target from $289.00 to $291.00 and reiterated their “Overweight” rating on the stock. This adjustment follows Workday’s recent Analyst Day, where the company presented its financial targets and growth strategies.

During the event, Workday reiterated its approach to achieving future growth, highlighting in particular the consistent growth of cRPO (calculated remaining performance obligation). Despite a conscientious skepticism among investors regarding Workday’s guidance for fiscal 2027, CapitalOne expressed confidence that the company will achieve its goals. This confidence is based on the assessment that the forecast growth for the second half of the period appears conservative.

Earlier, Workday updated its medium-term financial guidance when it announced its results. The company lowered its revenue growth forecast to 15% from 17% to 19% previously. However, Workday also raised its adjusted operating margin target to 30% in fiscal 2027, representing a rapid improvement of 500 basis points over two years.

CapitalOne’s increased price target follows Workday’s announcement of ambitious financial targets for fiscal year 2027. The company is targeting an operating cash flow margin of 34% and a free cash flow (FCF) margin of 30%.

These targets have led CapitalOne to raise its estimates for these margins by about 200 basis points. Additionally, Workday has set a target of capping stock-based compensation (SBC) at 15% of revenue, with net dilution of 1% per year. This could indicate an acceleration of the current share repurchase rate.

In other recent developments, Workday reported a 17% increase in subscription revenue to $1.903 billion in its latest quarterly report. In addition, the company announced the planned acquisition of Evisort, an AI-powered document intelligence platform. The deal is expected to close in the third quarter of Workday’s fiscal year 2025.

Workday also introduced four new AI agents—Recruiter, Expenses, Succession and Workday Optimize—designed to automate and improve HR and finance processes. These agents are part of the Workday Illuminate platform and are designed to increase productivity by optimizing routine business processes.

Various research firms such as UBS, BofA Securities, JPMorgan and Guggenheim have maintained different perspectives on Workday’s performance and their respective ratings and price targets. In terms of board changes, Workday announced the appointment of Rhonda J. Morris, Vice President and Chief Human Resources Officer of Chevron Corporation, to the board, effective in early 2025.

InvestingPro Insights

As Workday (NASDAQ:WDAY) continues to advance its growth strategy, recent insights from InvestingPro provided a deeper financial perspective on the company. Workday has a robust balance sheet with more cash than debt, giving investors confidence in the company’s future investment and operational flexibility. This is complemented by the fact that Workday’s cash exceeds its short-term cash, creating a solid foundation to weather potential market fluctuations.

Analyzing Workday’s real-time metrics, we see a market capitalization of about $65.48 billion, reflecting the company’s significant presence in the software industry. With a high price-to-earnings (P/E) ratio of about 42.59, the stock is trading at a premium, likely due to the impressive gross profit margin of around 75.77%. These margins indicate Workday’s strong pricing power and operational efficiency. In addition, the company has posted a notable revenue growth of 17.07% over the trailing twelve months through the first quarter of 2023, indicating robust business expansion.

InvestingPro Tips highlights that 25 analysts have upgraded their earnings forecasts for the coming period, indicating potential optimism about Workday’s financial performance. Additionally, Workday is recognized as a prominent player in the software industry, which could further boost investor confidence. For those interested in learning more about Workday’s financial health and future prospects, additional InvestingPro Tips are available, providing comprehensive analysis of company performance and valuation metrics.

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