Workday's Global Expansion & AI-ML Integration: Analyst Raises Price Target Highlighting Strong Growth Vectors

BMO Capital Markets analyst Daniel Jester reiterated an Outperform rating on Workday, Inc. WDAY, raising the price target to $260 from $240.

Jester continues to see an attractive medium-term risk/reward profile for Workday in the second-quarter results due August 24, 2023.

Jester anticipates a modest upside in revenue, translating to an EBIT margin roughly similar to the first quarter.

For the crucial 24-month backlog metric, where the company guided 2Q to 20% y/y, the analyst anticipates a smaller upside q/q. 

The analyst's favorable view on the shares is owing to the ongoing efforts in the organization to amplify growth vectors outside of the U.S. and across the financial suite, where evidence of progress is likely to extend over several more quarters. 

Leadership changes are also driving opportunities, including the fine-tuning of sales motions.

The company is also likely to gain from the strong AI-ML position, which will help further narrow product differential in global enterprise markets, particularly in financials (link), bolstering the international go-to-market.

Jester thinks Workday has enough levers to pull internally to drive performance, particularly heading into FY25, at a valuation that still provides for appreciation.

For the 3Q guide, the analyst sees 19% y/y vs. 19-19.5% consensus, which is reasonably set into the more seasonally important 4Q. 

Jester thinks that the pathway towards a multi-year growth runway in the high teens remains achievable for Workday, reflecting low/mid-teens-like growth in the scaled HCM business.

Price Action: WDAY shares are trading higher by 0.04% to $230.98 on the last check Wednesday.