Is The Sell-Side Getting On Board With The Workday Story Now?

Credit Suisse's Michael Nemeroff maintains a Neutral rating on Workday's stock, with a price target boosted from $94 to $100 as shares already value the company's business.

Workday's second-quarter earnings report was overall good with the headline numbers coming in ahead of expectations, Nemeroff commented in a research report. The company saw strength in HCM, which contributed to most of the subscription revenue outperformance in the quarter.

The company itself noted that it now has more than 30 percent of all Fortune 500 companies on its core HR platform, which implies at least 150 customers, up from 136 just six months ago, the analyst continued. Elsewhere, Workday's core financials are still in its early stages, as it hasn't confirmed any customer wins from the Fortune 100 group that would add to the bullish narrative.

Finally, Workday guided for a stronger-than-expected fiscal 2018 revenue growth of 33 percent but its operating cash flow guidance of around $420 million was maintained as fewer customers are paying upfront for multi-year contracts.

Canaccord: Beginning To 'Get It'

Canaccord Genuity's Richard Davis offered the bullish side of the story as he maintains a Buy rating on Workday's stock with a price target boosted from $115 to $125.

Workday's earnings report should serve as confirmation that the company is "executing well" based on: 1) backlog metrics, 2) comments on renewal uplift, 3) notable customer win confirmations, 4) revenue and cash flow metrics are all "pointing in the right direction."

Perhaps more important, the sell-side analysts who participated in the Q&A session of the conference call "seemed less confused" about several metrics, including long-deferred revenue, the analyst continued. As such, it sounds like the Street is "beginning to get it" and understand the merits of its fundamentals and turnaround story.

Finally, the analyst's internal checks suggest that there is upside to Workday's consensus revenues growth rate of 25 percent in 2018.

"Our view is that if this supposition is true, investors will reach our conclusion, and therefore drive the stock higher, sometime between a few weeks before the October analyst day and year-end," Davis concluded. "We believe Workday is a core holding, and while it is axiomatic, we would be aggressive buyers on dips caused by exogenous factors."

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