Brean Capital Shines Light on Workday Inc’s (WDAY) Disappointing Guidance


Last night, Workday Inc (NYSE:WDAY) reported a stronger than expected fiscal third quarter results, as billings grew 33.5%, beating Street estimate of 31%. However, the company’s outlook is below Street projections given “slippage of some large deals” early in the quarter. In reaction, Workday shares are falling nearly 12% as of this writing.

Brean Capital analyst Yun Kim commented, “While WDAY’s F3Q results were generally better than our/Street estimates and its guidance, we believe its weak F4Q and FY18 guidance reflects increasing uncertainty and variability in its business. What’s perhaps surprising to us is how much a few slipped deals in the first month of the quarter is impacting its business going forward. Despite reporting better-than-expected subscription billings over the last two quarters, its high end of FY17 subscription revenue has not been raised. Hence, we believe some investors are likely to question the quality of billings.”

“Fundamentally, our checks continue to indicate a lackluster demand environment for WDAY Financials in the large enterprise market. In our view, the stock’s current high valuation (CY17 EV/S of 8.0x) reflects gaining sizable market share in the $27B financials app market, which requires strong traction in the enterprise market. Until that traction emerges, we believe risk/reward is not favorable at current valuation levels,”

As such, the analyst reiterates a Sell rating on shares of Workday, with a price target of $62, which implies a downside of 13% from current levels.

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Yun Kim has a yearly average return of 4.3% and a 52.6% success rate. Kim has a -1.2% average return when recommending WDAY, and is ranked #991 out of 4239 analysts.

Out of the 35 analysts polled by TipRanks, 16 rate Workday stock a Buy, 17 rate the stock a Hold and 2 recommend Sell. With a return potential of 18.2%, the stock’s consensus target price stands at $84.21.