Workday A 'Long-Term Winner,' Morgan Stanley Upgrades

After gaining more than 40 percent throughout 2017, Workday Inc WDAY's stock remains attractive with upside ahead, according to Wall Street's newest bull analyst.

The Analyst

Morgan Stanley's Keith Weiss upgraded Workday's stock rating from Equal-weight to Overweight with a price target raised from $108 to $145.

The Thesis

One of the most notable arguments against being aggressive on Workday's stock can be made through the decline in subscription growth from near 40 percent to its current low-20s rate, Weiss said in the upgrade note. (See the analyst's track record here.) 

A "deep dive" by Morgan Stanley into Workday's story makes it apparent there are two potential catalysts on the horizon that would not only sustain strong top-line growth, but also "very strong" free cash flow growth, Weiss said. 

Shorter invoice duration is a headwind to billings growth through fiscal 2018, the analyst said. But stabilization in Workday's new contract invoicing terms could create tailwinds to billings growth in fiscal 2019 and beyond, he said. In fact, billings growth should accelerate toward the 30 percent range by the bottom half of fiscal 2019, Weiss said. 

The financials sector represents a notable component of Workday's $69-billion market opportunity, and the analyst's checks also found a "growing willingness" of customers to make use of Workday's cloud-based offerings for financial applications, the analyst said.

As Workday continues to scale its "heavy" R&D investments over a larger customer base, it will see steady margins near the 40-percent level and a path toward durable 25-percent free cash flow growth through fiscal 2024, according to Morgan Stanley. 

Price Action

Shares of Workday were trading higher by 3.43 percent early in Wednesday's trading session. 

Related Links:

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

5 Analyst Takes On Workday's Earnings

Photo courtesy of Workday.