Analyst Sees Gain For Workday As Y2K Fixes Die Off

Workday Inc WDAY will benefit from the replacement of aging business planning systems installed in a rush during the historic Y2K panic of 15 years ago, an analyst said Monday.

Brean's Sarah Hindlian launched coverage on Workday Monday with a Hold rating and $86 target.

"We expect Workday to be a clear winner," Hindlian said. "The questions are: when, by how much, and at what valuation?"

Workday, down 17 percent in the past 12 months, fell sharply after posting fourth-quarter results in February. Shares closed Monday at $83.87, up $1.31.

Given a typical 15- to 25-year life-cycle for enterprise resource planning software, Hindlian expects "replacements to pick up and Workday to have a seat at the table."

In the run-up to the year 2000, companies worldwide spent an estimated $300 to $400 billion or more to fix computer software that failed to distinguish between the years 1900 and 2000.

With the need to replace those now-creaking corporate software systems that manage personnel and finance, Hindlian said Workday's subscription model may offer a cost advantage versus legacy on-premise vendors.

But Workday is replacing tools that are complex and therefore expensive to update, and the products are a slow sell and take time to replace, Hindlian said.

A key to the company's potential growth rate is acceptance of its financial management tools, according to the analyst. The company is best-known for its personnel management software.