Investors Are Getting Interested In Workday

• Workday Inc WDAY shares have declined 18 percent over the past week and are trading close to the low end of their 52-week range of $65.33 to $97.40.
• Oppenheimer’s Brian Schwartz maintained an Outperform rating on the company, while reducing the price target from $110 to $90 to reflect contraction in the group average multiple.
• The read-through on 2Q hiring trends is negative, Schwartz said, adding that long-only investors may be “taking another look” at Workday, since it had a “strong fundamental story.”

Analyst Brian Schwartz said that open sales and total positions had declined 63 percent and 24 percent intra-quarter in 2Q. This is seasonally “much worse” than the two-year averages of down 47 percent and down 18 percent, respectively.

Schwartz added, however, that several long-only investors, who had so far been on the sidelines on Workday, appear to be increasingly interested in the company. These investors see a Tier-1 SaaS stock that has been underperforming for two consecutive years, despite its robust fundamentals, including “fast growth/steady share-gains, HCM leadership positioning and other good products, strong management, large open-ended TAM, etc.”

In the report Oppenheimer noted, “Our partner checks tilted positive on business activity and pipeline expansion for HCM, including potentially adding a F500 Technology logo for Workday. Large SIs also report increasing Workday headcount consultants and resources in their HR Transformation practices, which we interpret as indicating good HCM demand for Workday.”

Workday’s shares are down 13 percent year-to-date, as compared to a 2 percent rise in the group. Despite this, the company’s strong fundamental story and the prospects for the shares “going into the 2Q:FY2016 report,” Schwartz pointed out that “finding valuation support for growth leaders like Workday right now is more a sentiment call than fundamental.”