5 Analyst Takes On Workday's Earnings

Shares of Workday Inc WDAY were trading lower by more than 2 percent Thursday after the company's better-than-expected earnings report was overshadowed by several concerning metrics. Here's what some of Wall Street's top analysts are saying after the print:

Bank Of America: Upsell Cycle Ahead

Bank of America's Kash Rangan maintains a Buy rating on Workday's stock with an unchanged $134 price target.

Shares of Workday were trading lower due to disappointing billings growth of 25 percent and subscriber growth of 23.6 percent in the quarter, Rangan said in a research report. This was a surprise, but the reported billings growth is "misleading" and investors should pay attention to subscriber revenue growth of 37.2 percent, Rangan said. 

Other aspects of Workday's Q3 that Rangan highlighted were:

• Financials showing "more traction," as the segment added 37 percent customers.
• Revenue from global customers rose 48 percent from a year ago.
• Planning added 34 customers.
• High customer satisfaction at 98 percent is likely to drive higher retention rates and boost margins.

Morgan Stanley: Strength ... Maybe?

Morgan Stanley's Keith Weiss maintains an Equal-Weight rating on Workday's stock with an unchanged $108 price target.

The theme of Workday's earnings report is simple: "we want to believe," Weiss said in a note. At a time when the financials market continues to embrace cloud-based solutions, Workday reported a strong quarter that confirms an expanding market and opportunity, the analyst said. 

The traditional metrics used to assess the business are deteriorating, most notably with a slowdown in billings growth from 31 percent last quarter and 39 percent growth throughout fiscal 2017, the analyst said. Workday's guidance for fiscal 2019 also implies a "material slow down" to 26 percent year-over-year subscription growth.

Canaccord Genuity: On Track

Cannacord Genuity's Richard Davis maintains a Buy rating on Workday's stock with an unchanged $125 price target.

Workday's overall solid earnings report was followed up with a conference call that demonstrated management's focus on delivering long-term value to customers, perhaps at the expense of "Wall Street's favorite metrics," Davis said in a note. Some investors may view the company as a "black box," but the long-term prospects remain in place, he said. 

Investors may want to wait and see if the stock's "meltdown" prior to the earnings release eases, at which point it might be OK to buy the stock, according to Canaccord Genuity. 

BMO: Mixed Quarter

BMO Capital Markets' Keith Bachman maintains a Market Perform on Workday's stock with an unchanged $117 price target.

Workday's earnings report was mixed, with highlights found in good revenue and cash flow but disappointment in billings and backlog, Bachman said in note. The company's prospects in human capital management, financials and the mid-market category remain in place, he said. 

The problem with buying Workday's stock at current levels is valuation, as the stock is approaching a 10x multiple on fiscal 2019 revenue, which is at the high end of the analyst's 9x-to-10x preferred multiple, he said. 

Related Link: Workday's Q3: What Was Bullish, What Was Bearish

Oppenheimer: Solid Quarter, Lackluster Guidance

Oppenheimer's Brian Schwartz maintains an Outperform on Workday's stock with an unchanged $117 price target.

Workday's earnings report made it clear its "strength" remains in place and was supported by "bullish" commentary during the conference call, Schwartz said in a note. Investors may want to consider taking advantage of the stock's weakness from the report, as the underlying business drivers are "healthy," operating leverage is "coming through with scale" and management's consistent execution "strengthens confidence in the name," Schwartz said.

Related Link:

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

Photo courtesy of Workday.