Workday Has 'Breakout Potential' In 2018, KeyBanc Says In Upgrade

The finance and human resources software provider Workday Inc WDAY has the potential for a breakout in 2018, according to KeyBanc Capital Markets. 

The Analysts

KeyBanc Capital Markets analyst Brent Bracelin upgraded Workday from Sector Weight to Overweight with a $131 price target.

The Thesis

Workday shares could zoom past their 2014 high of $116.47, Bracelin said in a Wednesday note. (See the analyst's track record here.) 

Bracelin highlighted as what he sees as Workday's major catalysts: 

• International expansion.
• An inflection point on core financials moving to the cloud.
• A large total addressable market of $54 billion that can help sustain high growth through 2022.
• Penetration within the mid-market.
• A favorable risk-reward scenario.

Large enterprises are warming to migrating core financial ERP systems to the cloud, Bracelin said, citing recent discussions with large partners and competitors.

"Oracle Corporation ORCL and Workday were ranked by industry analysts as the top two leading cloud ERP platforms," the analyst said. 

KeyBanc raised its estimates to reflect an upward bias to consensus estimates of $2.66 billion for the next year, "in part because of inflecting enterprise interest in core financials moving to the cloud." 

KeyBanc recommends investors build a core position in core position in Workday over the next two quarters. Workday's total subscription growth is expected to decelerate into the 30-37 percent range on tough comps after securing Fortune 50 wins at Amazon.com, Inc. AMZN, Wal-Mart Stores Inc WMT, Target Corporation TGT and Citigroup Inc C last year, Bracelin said. 

The Price Action

Workday shares have gained more than 58 percent over the past year.

Related Links:

The Sentiment On Workday Could Not Be More Bullish

Workday Scores A Q3 Beat, But The Going Could Get Tougher From Here

Photo courtesy of Workday.