On Wednesday, Guggenheim reiterated its Sell rating on Workday (NASDAQ:WDAY), maintaining a price target of $200.00. The firm's analysis followed Workday's mixed third-quarter fiscal year 2025 results and fourth-quarter fiscal year 2025 guidance, which was slightly below market expectations. Workday's forecast for 14% subscription growth in fiscal year 2026 was notably lower than the consensus estimate of 15.2%.
The company attributed the conservative guidance to the timing of revenue recognition from large strategic deals signed in the third quarter, which have later deliverables. Guggenheim pointed out that such complex deals are typical for Workday, a company that regularly engages in multi-year, multimillion-dollar projects. Despite the subdued guidance, Workday did secure significant strategic agreements during the quarter, which were seen as a positive development.
Workday's new partnership strategy, which involves selling platform deals to smaller enterprises, was identified as a potential reason for the delayed revenue realization compared to direct deals, although the specifics of this impact remain unclear. Guggenheim expressed skepticism about Workday's ability to meet its previously stated target of 15% subscription growth through 2027, a goal that was affirmed just two months prior during the company's Analyst Day in September.
The analyst firm also cautioned investors regarding Workday's enterprise value to next twelve months' free cash flow (EV/NTM FCF) multiple. While the consensus multiple stands at 28 times, Guggenheim warned that adjusting for share repurchases to offset dilution raises this metric to 38 times, not including the effects of acquisitions. According to Guggenheim's estimates, the FCF multiples are approximately five turns higher when these factors are considered.
In other recent news, Workday Inc (NASDAQ:WDAY). reported a 16% increase in its third-quarter subscription revenue, reaching $1,559 million. However, the company adjusted its fiscal year 2026 subscription growth forecast to a slightly lower 14%. BMO Capital and RBC Capital maintained their Outperform rating on Workday, keeping a steady price target of $300.00, despite tempered growth expectations. Morgan Stanley (NYSE:MS) also maintained its Overweight rating, raising the stock's price target to $330 from $315.
On the other hand, Deutsche Bank (ETR:DBKGn) maintained its Hold rating and reduced the stock's price target from $275.00 to $265.00, while Piper Sandler shifted from an Overweight rating to a Neutral stance, reducing their price target to $270. Workday also announced leadership changes with Doug Robinson set to retire at the end of the fiscal year, and Rob Enslin joining as President and Chief Commercial Officer.
InvestingPro Insights
Workday's financial metrics and market position offer additional context to Guggenheim's analysis. According to InvestingPro data, Workday boasts a market capitalization of $71.3 billion and a P/E ratio of 46.28, indicating a high earnings multiple as noted in one of the InvestingPro Tips. This valuation reflects investor expectations for future growth, despite the conservative guidance highlighted in the article.
The company's revenue for the last twelve months stands at $7.86 billion, with a robust revenue growth of 17.07%. This growth rate aligns closely with Workday's forecast of 14% subscription growth for fiscal year 2026, suggesting that while the guidance may be conservative, it's not far off from recent performance.
An InvestingPro Tip points out Workday's impressive gross profit margins, which is corroborated by the data showing a gross profit margin of 75.77% for the last twelve months. This strong profitability metric underscores the company's efficiency in its core operations, potentially offsetting concerns about the timing of revenue recognition from complex deals mentioned in the article.
For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for Workday, providing a deeper dive into the company's financial health and market position.
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