Demand Is Improving For Workday, Stifel Says In Upgrade

Firsthand checks with private human capital management vendors point to an improving demand environment for companies like Workday Inc WDAY, according to Stifel.

The Workday Analyst: Brad Reback upgraded Workday from Hold to Buy with a price target lifted from $227 to $275.

The Workday Thesis: Workday deserves credit for introducing new products over the last few years that give it an opportunity to cross-sell or up-sell within the large HCM installed base, Reback said in the upgrade note.

The company has seen "healthy" levels of success, as its increased focus resulted in over 50% new annual contract value growth in its back-to-base teams over the last three quarters, the analyst said. 

The company has an opportunity to sustain a mid-to-high teens HCM growth rate in the coming years when factoring in further new customer wins, he said.

This marks a shift in narrative from prior concerns that HCM growth rates would continue to decelerate, Reback said. 

While it is "fair to say" that the core enterprise resource management replacement rates are slower than expected, the company has a strategy dubbed "surround the core," the analyst said.

This consists of using Planning and other platforms as an entry point into the finance department that would make it easier to win the ultimate Financials replacement over time, he said. 

WDAY Price Action: Shares of Workday were trading lower by 0.72% Friday afternoon at $218.93. 

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Photo courtesy of Workday.