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On Wednesday, Morgan Stanley (NYSE:MS) analysts downgraded Workday (NASDAQ:WDAY) stock from Overweight to Equalweight and reduced the price target from $330.00 to $275.00. The decision came after a reassessment of the company’s growth prospects and market conditions for the company, which currently maintains a market capitalization of $70.59 billion and has demonstrated revenue growth of 16.8% over the last twelve months. Analysts at the firm cited a mix of factors that influenced their more cautious stance on the enterprise software provider. According to InvestingPro, Workday shows strong financial health with multiple positive indicators available for subscribers.
The analysts noted that while Workday has shown best-in-class retention rates and still holds a large market opportunity with potential for margin expansion, the anticipated growth from the new management team’s market strategies has not materialized as expected. The company maintains an impressive gross profit margin of 75.6% and, according to InvestingPro data, holds more cash than debt on its balance sheet. Despite positive developments such as the adoption of Workday’s Financial Management Solutions (FINS) and successful cross-selling, these have not translated into overall company growth.
Over the past two years, consensus expectations for Workday’s growth have deteriorated. Analysts have raised concerns about increasing drags on growth from other parts of the business. Additionally, a series of weak fourth-quarter prints from the enterprise software sector, along with softening channel conversations and the risk of multiple compression, have added to the near-term concerns.
Despite the downgrade, Morgan Stanley continues to recognize Workday as a high-quality business with a durable free cash flow engine. However, the current valuation of Workday’s shares, trading at a P/E ratio of 43.04, is seen as more in line with a Growth at a Reasonable Price (GARP) asset, while the company’s fundamentals are trending closer to those of more value-oriented comparisons. This shift in valuation approach reflects the changing perspective on Workday’s stock amidst a broader reassessment of growth expectations and market risks. For a comprehensive analysis of Workday’s valuation and growth prospects, investors can access the detailed Pro Research Report available on InvestingPro.
In other recent news, Workday has been a focal point for several analyst firms. Canaccord Genuity upheld its Buy rating on Workday shares with a steady price target of $300.00, indicating that Workday continues to expand its subscription revenue at a robust mid-teens rate. Needham also maintained a Buy rating and $300.00 price target for Workday, following the company’s announcement of an 8.5% workforce reduction to prioritize platform expansion.
Simultaneously, Morgan Stanley reiterated its Overweight rating and a price target of $330.00 on Workday, suggesting the recent workforce reduction could lead to improved margins. Mizuho (NYSE:MFG) Securities reaffirmed an Outperform rating with a $320.00 price target, viewing the company’s strategic realignment as a positive move. Lastly, Jefferies analyst Brent Thill maintained a Buy rating on Workday with a price target of $350.00, emphasizing the potential for the company to improve its margin leverage.
These are recent developments that indicate a general consensus among analysts about Workday’s solid financial performance and strategic decisions.
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