Needham Upgrades Workday Ahead of Q4 Report

Improved sales for Workday Inc WDAY's financials platform could drive upside in the fourth quarter, according to Needham. 

The company is scheduled to release Q4 results after the close Feb. 27.

The Analyst

Needham analyst Scott Berg upgraded shares of Workday from Hold to Buy and set a $130 price target. 

The Thesis

Needham's checks indicated strong Q4 human capital management sales in large enterprise, Berg said in a Monday note. (See the analyst's track record here.)

Payroll commentary was mixed, the analyst said. 

"Although we got the stock wrong over the last 12 months as it moved higher on the strength of HCM sales, we think that any valuation above $100 ($20-billion market cap) is dependent upon sustained growth in the company's financials platform," Berg said.

The analyst expressed surprise at the traction gained by Workday's financial solutions.

"While we have no knowledge of any impending transactions, we believe FY19 and FY20 could be the start of Workday actively using M&A to augment its applications growth." 

Workday's education and government segments are performing well, Berg said. 

Workday's operating model is gaining leverage, even excluding any nominal benefit from the adoption of the ASC 606 accounting rule and the short-term commissions deferral benefit, according to Needham. 

Bookings upside plus visibility into 20-percent FCF margins in fiscal 2019 will keep the share price moving higher, Berg said. 

The Price Action

Workday shares are up over 34 percent over the past year.

At the time of publication, the stock was adding 3.49 percent to $116.90. 

Related Links:

Mizuho: After Industry Consolidation, Cloudera Emerges As A Buy

Workday A 'Long-Term Winner,' Morgan Stanley Upgrades

Photo courtesy of Workday. 

Posted In: NeedhamScott BergAnalyst ColorUpgradesPrice TargetAnalyst Ratings

Ad Disclosure: The rate information is obtained by Bankrate from the listed institutions. Bankrate cannot guaranty the accuracy or availability of any rates shown above. Institutions may have different rates on their own websites than those posted on Bankrate.com. The listings that appear on this page are from companies from which this website receives compensation, which may impact how, where, and in what order products appear. This table does not include all companies or all available products.

All rates are subject to change without notice and may vary depending on location. These quotes are from banks, thrifts, and credit unions, some of whom have paid for a link to their own Web site where you can find additional information. Those with a paid link are our Advertisers. Those without a paid link are listings we obtain to improve the consumer shopping experience and are not Advertisers. To receive the Bankrate.com rate from an Advertiser, please identify yourself as a Bankrate customer. Bank and thrift deposits are insured by the Federal Deposit Insurance Corp. Credit union deposits are insured by the National Credit Union Administration.

Consumer Satisfaction: Bankrate attempts to verify the accuracy and availability of its Advertisers' terms through its quality assurance process and requires Advertisers to agree to our Terms and Conditions and to adhere to our Quality Control Program. If you believe that you have received an inaccurate quote or are otherwise not satisfied with the services provided to you by the institution you choose, please click here.

Rate collection and criteria: Click here for more information on rate collection and criteria.