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TheStreet Open House

Why Workday (WDAY) Was Upgraded

Story updated at 10 a.m. to reflect market activity.

NEW YORK (TheStreet) -- Workday (WDAY) was upgraded to "outperform" from "market perform" by FBR Capital Thursday.

Workday gained 9.7% to $110 in morning trading.

The analyst firm raised its price target for the software company to $150 from $84. Analyst Samad Samana said the upgrade is due to seeing higher sales demand across the board.

"Last night, Workday, Inc. (WDAY) reported solid F4Q14 (January) results that beat consensus revenue and EPS estimates," Samana said.

"Both subscription and support and professional services contributed to the revenue upside, as demand was healthy across the board. Most importantly, WDAY delivered much stronger-than-expected billings growth (+78% year over year) during the quarter, as customer spending on cloud-based HCM applications remained robust, sales head-count increases drove greater deal activity, and the company's financial management applications experienced accelerating adoption. While the installed base remains modest in size, a second quarter of double-digit new customer additions suggests efforts to make the financial applications more mature and deploying a dedicated sales force are paying dividends. On the bottom line, the company delivered EPS upside, which was a surprise given that it remains squarely in invest-for-growth mode. WDAY does not expect this pace of profitability expansion to continue in the near term. Looking forward, Workday also provided F1Q15 (April) and FY15 (January 2015) revenue guidance that was well above consensus expectations, suggesting healthy momentum for existing products and strong early interest in newer products."

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Separately, TheStreet Ratings team rates WORKDAY INC as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:

"We rate WORKDAY INC (WDAY) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income and feeble growth in its earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Software industry. The net income has decreased by 15.1% when compared to the same quarter one year ago, dropping from -$41.31 million to -$47.53 million.
  • WORKDAY INC' earnings per share from the most recent quarter came in slightly below the year earlier quarter. For the next year, the market is expecting a contraction of 24.4% in earnings (-$0.56 versus -$0.45).
  • WDAY's debt-to-equity ratio of 0.78 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 3.79 is very high and demonstrates very strong liquidity.
  • Compared to other companies in the Software industry and the overall market, WORKDAY INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for WORKDAY INC is rather high; currently it is at 69.32%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -37.17% is in-line with the industry average.
  • You can view the full analysis from the report here: WDAY Ratings Report

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