Bull of the Day: Workday (WDAY)

Workday (WDAY) is a Zack Rank #1 (Strong Buy) that is a cloud-based software company that provides enterprise-level solutions for managing financial and human resources operations.

The stock has seen some volatility this year, hitting all-time highs in February, but falling 35% from those highs as recently as August.

However, a recent earnings report helped the stock higher. After a pullback from the earnings move higher and some consolidation, the stock is looking ripe to buy. Additionally, earnings estimates are moving higher into the earnings report next month.

About the Company

Workday was incorporated in 2005 and is headquartered in Pleasanton, California. The stock is valued at $64 billion, and the company employs around 19,000.

Workday provides cloud-based solutions for managing key business functions. Its Human Capital Management (HCM) system helps companies handle employee data, payroll, hiring, and workforce planning. The Financial Management software covers accounting, procurement, and financial analysis to streamline financial operations.

Workday also offers planning and analytics tools for budgeting and forecasting, enabling data-driven decision-making. Additionally, it supports educational institutions with student management and organizations with employee learning programs.

The stock has a Zacks Style Score of “B” in Momentum, and “C” in Growth. However, the stock has a “F” in Value, with a Forward PE at 35.

Q2 Earnings

In late August, Workday reported strong Q2 results, with EPS beating expectations by 7% and revenues surpassing estimates. The company reaffirmed its FY25 subscription revenue guidance of $7.70-$7.73 billion and raised its non-GAAP operating margin target to 25.3%. Subscription revenue grew 17.2% year-over-year to $1.90 billion, while the 12-month subscription backlog climbed 16.1% to $6.80 billion.

The company also approved a new $1 billion share repurchase program.

CEO Carl Eschenbach emphasized AI innovation and a unified platform as key growth drivers.

Looking ahead, Workday targets a 30% operating margin by 2027, up from the previous 25%, while maintaining a 15% annual subscription growth rate. The company sees the current macro environment as the new norm, influencing its medium-term outlook, but continues to expand in higher education, healthcare, and international markets, particularly in APAC and Europe, further strengthening its market position.

The stock reaction was very positive, with the stock jumping 12%, moving from $231 to $260

Estimates Headed Higher

Since reporting earnings, analyst estimates have been slowly trending higher

For the current quarter, estimates went from $1.67 to $1.72 since EPS, or 3% higher. For the current year, the last 60 days has seen a tick higher from $6.77 to $6.97, again 3%.

Estimates for next year have seen a bigger jump. Analysts now see $8.21 v $7.73, a move of 6% higher.

The stock has seen multiple price target upgrades since earnings. Canaccord Genuity, Needham, BMO Capital, Goldman Sachs, and JMP Securities all have price targets at $300 or greater. The $300 level is 22% above the current trading price. 

The Technical Take

The excitement after earnings did not last long and the stock ended up filling the earnings gap. It has since traded sideways, consolodation around the 50-day MA.

If the bulls can take control over the 200-day MA at $253, the stock should get some momentum higher. A break over the $255 area would be significant, as it would break the 61.8% Fibonacci level found drawing the post-earnings highs to recent lows. From there, the bulls could target the 161.8% extension at $288.

While that potential setup is very tempting, the company’s next earnings report is in the back half of November. We could see continued consolidation into that next catalyst.   

In Summary

Workday presents a compelling bullish opportunity as it continues to demonstrate strong fundamentals, consistent subscription revenue growth, and increasing adoption of its AI-powered platform.

Despite recent volatility, the stock's positive reaction to Q2 earnings and upward-trending estimates suggest renewed investor confidence. With multiple analysts setting price targets above $300 and a promising technical setup, Workday appears poised for a breakout.

As the company targets a 30% operating margin by 2027 and sustains double-digit subscription growth, long-term investors should consider Workday's potential as it navigates the evolving macro environment and continues expanding its market leadership.

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