Market Overview

Citi: Ceridian Is 'Already Priced' For Its Market Share Potential

Citi: Ceridian Is 'Already Priced' For Its Market Share Potential

Human resources and payroll company Ceridian HCM Holding Inc (NYSE: CDAY) stands to gain market share, but this isn't enough reason to be a buyer of the stock, according to Citi.

The Analyst

Citi's Walter Pritchard initiated coverage of Ceridian's stock with a Neutral rating/High risk and $38 price target.

The Thesis

Ceridian, fresh off its April initial public offering, operates a legacy "bureau" payroll business that is already operating at a profit, while the cloud business continues to scale and should expand to account for 90 percent of total revenue by fiscal 2022, Pritchard said in the initiation note.

As encouraging as Ceridian's outlook may be, the stock's valuation of 7.5x fiscal 2019 EV/Rev is already trading at a 1.5 multiple turn higher compared to similarly growing and already profitable peers, the analyst said. 

It's reasonable to conclude investors are already accounting for the company's growth beyond fiscal 2019, Pritchard said. Citi's $38 price target is based on a 25x multiple on fiscal 2024 free cash flow to firm and discounted back at an 8.4-percent weighted average cost of capital.

Ceridian will likely be a market share winner over time, but the stock is already "priced for it," Pritchard said. 

Price Action

Ceridian shares were down 1.62 percent at$34.59 at the time of publication Tuesday. 

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Latest Ratings for CDAY

Jan 2021Credit SuisseMaintainsNeutral
Nov 2020Credit SuisseUpgradesUnderperformNeutral
Nov 2020Credit SuisseMaintainsUnderperform

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