Cowen maintains Buy rating on Dayforce stock with $68 target

On Monday, TD Cowen reaffirmed their positive stance on Dayforce (NYSE: DAY), maintaining a Buy rating and a $68.00 price target for the company’s shares. The endorsement comes as the analyst, Jared Levine, identified Dayforce as their top pick, noting the company’s ongoing efforts to improve its financial metrics. According to InvestingPro data, the stock has experienced a challenging year, down nearly 24% YTD, though current analysis suggests the stock may be undervalued.

Levine highlighted that Dayforce’s normalized gross margin, excluding float, remained the lowest among its peers in 2024. While InvestingPro data shows the company maintains a solid gross profit margin of 50.71% and impressive revenue growth of 16.27% over the last twelve months, this was attributed to a significantly higher proportion of non-recurring revenue, nearly six times that of its competitors. Despite this, Dayforce has made consistent strides in reducing the disparity when compared to its counterparts.

The analyst projected that, over the medium term, Dayforce is expected to further close the gap in free cash flow (FCF) margins relative to industry peers such as Paycom Software (ETR:SOWGn) (NYSE:PAYC) and Paylocity (NASDAQ:PCTY). With current levered free cash flow at $266.8 million, Levine underscored the importance of this trend, suggesting that it will support the continued decrease in the difference between Dayforce and its competitors. Get access to 12 additional InvestingPro Tips and comprehensive financial analysis in our detailed Pro Research Report, available exclusively to subscribers.

Furthermore, Levine expressed optimism regarding Dayforce’s financial future. He foresees a viable trajectory for the company to approach a 20% free cash flow margin in the medium term. This positive outlook is based on anticipated improvements in underlying margin expansion and free cash flow conversion, which are expected to drive the company’s financial performance going forward.

Dayforce’s stock rating and price target by TD Cowen indicate confidence in the company’s potential for growth and profitability, as it works to enhance key financial indicators and deliver value to its shareholders.

In other recent news, Dayforce has announced a restructuring plan that will reduce its workforce by approximately 5%, aiming for pre-tax cost savings of about $65 million for fiscal year 2025 and an annualized run-rate basis of $80 million. This plan, disclosed in a recent SEC filing, is part of the company’s strategy to drive profitable growth. Additionally, Dayforce has successfully amended its credit agreement to secure lower interest rates on its loans, a move facilitated by JPMorgan Chase (NYSE:JPM) Bank, N.A. This amendment is expected to enhance the company’s fiscal sustainability by reducing borrowing costs.

TD Cowen recently upgraded Dayforce’s stock rating from Hold to Buy, increasing the price target slightly to $68, citing an underappreciated free cash flow margin expansion. Meanwhile, BMO Capital Markets adjusted its price target for Dayforce from $90 to $83, maintaining an Outperform rating despite noting a potential slowdown in the company’s fourth-quarter performance. The analyst from BMO emphasized Dayforce’s robust bookings growth and ongoing market share expansion as positive indicators.

Dayforce has also disclosed its 2025 Management Incentive Plan, aligning executive compensation with financial targets such as revenue growth and free cash flow margin. This includes significant equity awards for key executives, with CEO David D. Ossip receiving a notable increase in his annual base salary. These developments reflect Dayforce’s strategic initiatives to improve financial performance and investor confidence.

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