MUFG Analyst Starts Workday At Overweight, Notes Stock Deserves 'Significant' Premium

• The share price of Workday Inc WDAY has declined 43.34 percent over the past one year, falling to a low of $48.97 on February 8.
• Stephen Bersey of Mitsubishi UFJ Securities has initiated coverage of the company with an Overweight rating and price target of $60.
• Bersey expects upside potential of 11 percent to the current valuation, and for the stock’s P/S multiple to move closer to the peer group average as the company’s operations mature.

Analyst Stephen Bersey pointed out that in the past, “human resources (HR) has been an area of IT neglect within the enterprise application market, and that has created a large market opportunity for cloud-based vendors.”

However, with its easy-to-use cloud based HR applications, Workday has been gaining market share from legacy application vendors.

Bersey believes that the company is still in the early stages of a “long-tailed enterprise HR implementation cycle,” which is expected to see robust end-market demand for the foreseeable future.

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“That, coupled with good execution, should produce well-above-average peer-group HR revenue growth for the company for several years, in our opinion,” Bersey said.

While Workday has made “good progress” in terms of its financial offerings, Bersey expects the company’s near term growth to be driven mainly by the momentum in the HR portfolio. Workday is also expected to see meaningful long-term success in its financials management offering.

In fact, Bersey believes that “the value of the financials end-market could be greater than that of the HR market and that this opportunity is not fully reflected in the stock’s value.”