Looking At 20 Price Target Changes In Workday Stock (NASDAQ: WDAY)

Workday shares (NASDAQ:WDAY) pulled back sharply in price on Friday, with a fall of 15.3% during the trading session putting the stock close to $220, levels not seen in 6 months. This drop came in the wake of the company's first-quarter earnings release, where it presented mixed results that underwhelmed against expectations, despite a revenue beat.

The headlines to come from the report:

• EPS of $1.74 against consensus expectation of $1.58
• Revenue of $1.99bn against consensus of $1.97bn
• Free cash flow of $291million, down 69.4% from previous quarter
• Guidance on subscription revenue – $7.71bn against consensus of $7.77bn

In the reported first-quarter financial outcomes, Workday succeeded in slightly surpassing revenue projections. However, the performance highlight—or lowlight—was the billings component, which fell short of what analysts had anticipated. This metric is closely watched as it is a critical indicator of the company's future revenue potential, reflecting the value of signed contracts.

Workday pointed to a couple of reasons for the softer billings figure. One key factor cited was the fewer large deals being secured in comparison to the prior quarter, which can significantly influence revenue recognition. Additionally, during contract renewals, Workday observed a trend where customers committed to lower headcount levels. These two factors combined to paint a less robust picture of Workday's current business environment.

Looking ahead, Workday has set the stage for investors to brace for continued challenges in the near term with guidance. With the outlook for FY25 subscription revenue being trimmed to $7.7B-$7.725B from $7.725B-$7.775B, WDAY is now expecting an operating margin of 25.0%.

Price Target Adjustments For WDAY

These outlook revisions have hit hardest with many analysts dropping their Workday price targets in the aftermath. At last count, we noted 20 firms to have dropped their price forecasts, with some notable bulls also reigning in their optimism.

Some of the names on the street to have made price target adjustments:

• Macquarie – $238 from $300. The firm was quoted as saying the lowered guidance “casts a near-term veil on growth”, despite solid earnings.
• JP Morgan – $285 from $300. Comments that whilst Workday “continues to carry a mid-teens trajectory at impressive scale,”, the guidance outlook on billings will likely disappoint.
• Jefferies – $330 from $350. The firm were positive in their note, indicating their belief that CEO Carl Eschenbach is putting the right initiatives in place despite the near-term challenges.
• Evercore – $300 from $350, A large drop in expectations from a notable bull who reaffirmed their Outperform rating on the stock. The note indicated the feeling that there is “plenty of room to go after margin if revenue growth ultimately trends towards the mid-teens” but that WDAY is “likely heading to the penalty box until there is more confidence.”
• Barclays – $286 from $316
• Keybanc – $275 from $330
• Wells Fargo – $325 from $350
• Canaccord – $270 from $305
• Piper Sandler – $280 from $330
• Mizuho – $280 from $325
• Oppenheimer – $300 from $320
• Morgan Stanley – $325 from $330
• Goldman Sachs – $300 from $310
• TD Cohen – $290 from $330
• Stifel – $250 from $290
• Baird – $265 from $316
• Loop Capital – $240 from $280
• RBC Capital – $300 from $310
• DA Davidson – $255 from $300
• BMO Capital – $300 from $338

While the immediate market reaction has been negative, analysts seemingly remain confident in the leadership's ability to navigate through the headwinds and continue to extract growth. The lowest target price coming out of the 20 to adjust above at $238 reflects around 7.5% upside from the last close, but the high of $330 is almost 50% growth potential.

Which end of the scale WDAY comes closer to over the next year is more open than it might have seemed just a few short days ago, but with the stock now trading back at levels not seen for 6 months, some might be eyeing an entry.