Workday, Inc (NASDAQ:WDAY) continues to show solid deal momentum, according to Bank of America Securities analyst Brad Sills.
The company boasts cross-commercial, healthcare, and financial services customers, along with strong demand for human capital management. As a result, Sills maintained a Buy rating on Workday with a price forecast of $265.
Partners see firmer trends in Europe and optimism heading into 2026, as Workday expands and achieves free cash flow growth.
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Sills’ channel checks showed Workday closing deals primarily in line with expectations, with growing optimism for 2026. The analyst highlighted strong momentum in commercial, healthcare, and financial services — especially in core human capital management or HCM solutions. Partners also report solid HCM add-on demand, including Extend (low-code/no-code tools) and talent-acquisition products, along with slightly firmer trends in Europe, he noted.
Sills modelled 16.5% third-quarter current remaining performance obligation or cRPO growth in a bullish scenario, supported by this deal activity. The analyst expects fourth-quarter cRPO growth of 15.5% year-over-year, matching third-quarter given a similar comparison. On margins, he anticipates a beat-and-raise quarter as Workday pushes efficiency to hit its 35% fiscal 2028 operating margin target. Sills forecasts third-quarter and fiscal 2026 margins of 28% and 28.9%, respectively.
The analyst argued that solid free cash flow growth is more achievable now that Workday reset expectations. He noted that earlier investor worries centered on AI disruption and on whether Workday could hit near-term growth targets. While Workday may not be viewed as a near-term "AI winner," Sills noted repeated beat-and-raise quarters would counter bearish fears that Workday becomes an AI laggard.
The analyst believes Workday's updated long-term goals — 12% to 15% revenue growth and 35% margins — support a credible free cash flow or FCF growth model. He also sees multiple expansion potential: the stock trades at 14 times calendar 2027 FCF, or 0.6 times when adjusted for mid-20s growth, well below historical software peer averages of 1.2 times–2 times.
Sills concluded that Workday maintains a healthy growth runway through international expansion, mid-market wins, and platform deals — enough to deliver consistent growth and improve investor confidence.
Sills projected third-quarter revenue of $2.42 billion and EPS of $2.21.
Price Action: WDAY shares were trading lower by 0.76% to $229.07 at last check Monday.
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