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Workday shares face headwinds as Stifel cuts target

EditorEmilio Ghigini
Published 2024-05-24, 07:36 a/m
© Reuters.
WDAY
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On Friday, Stifel, a financial services firm, revised its price target for Workday (NASDAQ:WDAY) shares, a provider of enterprise cloud applications for finance and human resources. The new price target is set at $250, down from the previous $290, while the firm maintained a Hold rating on the stock.

Workday reported its first-quarter fiscal year 2025 results, with subscription revenue growth of 19% year-over-year, slightly exceeding analyst expectations. However, the 12-month backlog growth of 18% only met projections.

The company's management acknowledged increased deal scrutiny, particularly in the Europe, Middle East, and Africa (EMEA) region, and a drop in customer head count renewal levels, trends they expect to continue throughout fiscal year 2025.

In response to these challenges, Workday's management has lowered its subscription revenue guidance to 17% for the fiscal year. Nonetheless, they have raised operating margin (OM) expectations by 50 basis points due to strong operating leverage within the business.

Despite the headwinds, Workday's management pointed out positive aspects, including a strong performance in the healthcare and public sector verticals, continued strength in Financial Management Solutions (FINS), and full platform wins. The company has also seen a solid build-up in its partner-driven pipeline.

Stifel's commentary on the price target adjustment highlighted Workday's focus on key investment areas. However, the firm noted that without significant progress in competing against well-established rivals for large enterprise deals in FINS and international markets, Workday is unlikely to return to a subscription growth rate above 20% in the near term.

InvestingPro Insights

As Workday (NASDAQ:WDAY) navigates through its fiscal year 2025 with a mix of challenges and strengths, the latest data from InvestingPro provides additional context for investors. With a market capitalization of $69.21 billion and a P/E ratio of 49.61, Workday is trading at a high earnings multiple, which is a point of consideration for investors looking at the company's valuation. Despite the high P/E ratio, Workday is trading at a low P/E ratio relative to near-term earnings growth, which could signal potential for investors.

InvestingPro Tips further reveal that Workday holds more cash than debt on its balance sheet and is a prominent player in the Software industry. Moreover, the company is profitable over the last twelve months, with a revenue growth of 16.78% and a robust gross profit margin of 75.6%. These factors may contribute to the company's resilience in the face of increased deal scrutiny and a competitive market landscape.

For those interested in a deeper dive into Workday's financial health and prospects, InvestingPro offers more tips on the company's stock performance and valuation. To access these insights and leverage your investment strategy, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 12 additional InvestingPro Tips available, which provide a comprehensive analysis of Workday's financial standing and market position.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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