Workday Could Have Additional Upside On Q4 Earnings, Even After A 29% Run

Piper Jaffray’s Alex J. Zukin highlighted checks on Workday Inc WDAY revealed the strongest results “in recent memory” in a recent research note. He said this indicates the company's fundamentals have significantly improved since the previous quarter and a premium valuation is warranted.

The analyst upgraded the rating on the company from Neutral to Overweight, while raising the price target from $78 to $100.

Room For Upside

Workday’s shares have appreciated 29 percent year-to-date, following the recent announcement that the company has signed on Wal-Mart Stores Inc WMT and its over 2 million employees.

However, Zukin believes there is still room for additional upside following Workday’s fourth-quarter 2016 results report on February 27, given that checks during the quarter have been “been the strongest in recent memory.”

Strong-Quarter Expected

The analyst expects the company to report beat results for the quarter, with expectations that the upside was largely driven by “multiple large marquee signings, higher deal volume, and more multiproduct platform deals in both the U.S. and Europe.”

Checks suggest linearity was favorable during Q4, with some of the larger deal signings helping Workday to have “more aggressive and flexible” customer conversations.

Related Link: A Closer Look At Workday's Student Opportunity

Going Forward

“We believe the company remains flexible on terms and pricing at larger enterprises with the majority of the flexibility focused on the ramping of employees onto the platform, but concessions on overall pricing and product bundling are also used to win competitive deals, Zukin stated.

Workday has noted that these negotiating tactics would lead to a 500-bps headwind during FY 2018, although they would abate in 2019.

In addition, the U.S. checks suggest that the FY 2018 pipeline for both financials and HR deals have been “among the best” that the company has entered into entering a new fiscal year and that a number of large deals are potentially twice the size seen in the previous year.