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On Wednesday, Morgan Stanley (NYSE:MS) reiterated its Overweight rating and $330.00 price target on Workday (NASDAQ:WDAY), a prominent player in the software industry with a market capitalization of $72.85 billion, in light of the recent announcement of workforce reductions. According to InvestingPro data, the company maintains strong financial health with a ’GOOD’ overall rating and holds more cash than debt on its balance sheet. The firm’s analysts addressed investor concerns regarding the company’s slowing growth and repeated downgrades to growth expectations over recent years. The announcement of an 8.5% reduction in headcount at Workday has raised questions about the company’s strength and demand for its services.
The analysts noted that while the headcount reduction might seem alarming, Workday has also projected that its fiscal fourth quarter 2025 (F4Q25) results would meet or exceed current guidance. This forecast could indicate potential growth that surpasses current estimates or guidance, building on the company’s impressive 16.8% revenue growth over the last twelve months and robust 75.6% gross profit margin. The move to reduce employee numbers is interpreted by Morgan Stanley as a strategic decision that could lead to improved margins for Workday.
The workforce reduction announcement comes after a period where Workday’s management has had to lower growth expectations multiple times. Investors have been wary of the company’s performance amidst these adjustments. However, the reassurance provided by Workday regarding its upcoming quarterly results offers a glimmer of positivity in the current situation.
Morgan Stanley’s commentary suggests that despite the initial concerns that may arise from the reduction in workforce, there could be longer-term benefits for Workday. The analysts believe that the decision could be a step towards better financial health, particularly in terms of profitability.
In summary, while the headcount reduction at Workday may initially concern investors, the firm’s expectation for F4Q25 and the potential for improved margins provide a counterbalance to these worries. Morgan Stanley’s sustained Overweight rating and price target reflect a belief in Workday’s strategic decisions and future prospects. With a current P/E ratio of 44.85 and strong liquidity indicated by a current ratio of 2.05, investors seeking deeper insights can access comprehensive analysis and 12 additional ProTips through InvestingPro’s detailed research reports.
In other recent news, Workday Inc . has announced a significant restructuring plan, which includes a reduction of approximately 1,750 positions, equating to 8.5% of its workforce. The company anticipates charges between $230 million to $270 million related to the restructuring, with a portion expected to be recognized in the fourth quarter of fiscal 2025 and the remainder in the first quarter of fiscal 2026. Despite this, Workday expects its fourth quarter and full-year 2025 financial results to meet or exceed prior guidance. Analyst firms Mizuho (NYSE:MFG) Securities and Jefferies have maintained positive ratings for Workday, with Mizuho maintaining an Outperform rating and a $320 price target, and Jefferies maintaining a Buy rating with a $350 target. Both firms view the restructuring as a strategic move that could potentially improve Workday’s margin leverage. These are recent developments for Workday, which is scheduled to release its fourth-quarter 2025 earnings on February 25.
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