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On Friday, KeyBanc Capital Markets adjusted its outlook on Workday stock (NASDAQ:WDAY), reducing the price target to $325 from $335, while maintaining an Overweight rating. The adjustment comes as the stock has experienced a significant 12.8% decline over the past week, though analyst sentiment remains broadly positive with targets ranging from $250 to $340. Jason Celino, an analyst at KeyBanc, provided insights into the revised figures, attributing the change to a new inclusion in the calculation of Workday’s critical performance metric. According to InvestingPro, 27 analysts have recently revised their earnings estimates upward for the upcoming period.
Workday recently reported its first-quarter revenue, which slightly surpassed expectations, and operating margin (OM) that was well above what analysts had anticipated. The company maintains strong financial health with a "GOOD" rating from InvestingPro, supported by robust revenue growth of 15% and an impressive 76% gross profit margin. Celino pointed out that the company’s current remaining performance obligations (cRPO) growth rate of 15.6%—which exceeded the consensus estimate of 15.1%—now includes contributions from short-term tenant contracts. These contracts had not been factored into the cRPO definition or guidance previously.
For the second quarter, Workday has guided for cRPO growth of 15-16%, which also accounts for a 1-point contribution from tenant contracts. This forecast is just shy of the consensus projection of 14.9% when evaluated without the tenant contract contributions.
Celino noted that despite the macroeconomic uncertainties, Workday’s management has not yet observed any direct effects on the State, Local, and Education (SLED) and international markets but is monitoring the situation closely. The slight reduction in the price target reflects these macro uncertainties and the new inclusion in the cRPO calculation.
In other recent news, Workday reported first-quarter earnings that surpassed Wall Street expectations with non-GAAP earnings per share of $2.23, exceeding the consensus estimate of $2.01. The company’s revenue reached $2.24 billion, slightly above the anticipated $2.22 billion, marking a year-over-year increase of 13%. Despite these positive earnings, Workday experienced a slowdown in growth compared to the previous quarter, with subscription revenue climbing 13% to $2.06 billion, down from 16% growth in the prior quarter. Analysts from various firms have shared their perspectives following these results. BNP Paribas (OTC:BNPQY) Exane maintained an Outperform rating, expressing optimism for future growth driven by product deliverables and AI technologies. Piper Sandler raised its price target to $255, noting a slight overperformance in subscription growth but maintaining a Neutral rating due to concerns about growth stability. RBC Capital Markets reiterated an Outperform rating with a $340 target, highlighting progress in AI and potential stabilization in the company’s business. TD Cowen reduced its price target to $310, maintaining a Buy rating while noting cautious spending and a conservative forecast. JMP reaffirmed its Market Outperform rating with a $315 target, underscoring confidence in Workday’s long-term prospects despite short-term fluctuations.
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