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.
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.
Photo courtesy of Workday.
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