Why Investors and Analysts Are Fighting a War Over Workday Expectations Beat

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Workday Inc. (NASDAQ: WDAY) has become a serious battleground stock. After posting earnings that should look solid, there is a real mix among analysts and investors over where Workday really should be valued.

While the earnings report would have looked solid for almost any other company, the cloud-based solutions provider for finance and human resources operations is still valued at more than 100 times next year’s expected earnings. The company now counts more than 2,100 enterprise customers, 175 of which are members of the Fortune 500.

When Workday reported its most recent quarterly results after the market closed on Tuesday, the company said that it had $0.28 in earnings per share (EPS) on $582.5 million in revenue. The consensus estimates had called for $0.21 in EPS on $574 million in revenue.

In terms of guidance, Workday expects to see subscription revenues in the range of $514 million to $516 million, while professional services revenue expectation is $93 million. Consensus estimates call for $0.29 in EPS on $600.17 million in revenue.

Many analysts are raising their underlying earnings estimates and their price targets. The problem is that analysts greatly disagree over whether Workday is already fully valued or if it can have even greater upside ahead.

Needham’s analyst team is among the most bullish of them all. It has a Buy rating and it raised its target price to $150 from $130. Canaccord Genuity also has a Buy rating, and it raised its target price to $145 from $125.

JMP Securities has a Market Outperform rating but raised its target from $117 to $141, while KeyBanc Capital Markets has an Overweight rating, and the firm raised its target to $140 from $131. Oppenheimer has an Outperform rating and raised its target to $136 from $122. And Robert W. Baird has a Buy rating and raised its target from $114 to $140.

Other analysts were more cautious in their formal ratings. Yet, they have all raised their price targets and expectations on Workday:

  • Barclays has an Equal Weight rating, but the firm raised its target price to $121 from $115.
  • BMO Capital Markets maintained it at Market Perform but raised the target to $135 from $117.
  • Credit Suisse maintained its Neutral rating but raised its target to $110 from $100‍.
  • Jefferies maintained its Hold rating and raised its target from $101 to $119.
  • Stifel has a Hold rating but raised its target price to $115 from $98‍.
  • Wedbush Securities has a Neutral rating but raised its target to $119 from $106.

And to throw another wrench in this valuation debate, the short sellers are becoming ever more emboldened in Workday. Its short interest had shrunk some in 2017, but after bottoming at 12.7 million shares in November, the number of shares short has risen for six straight bimonthly reports to over 15.7 million shares. It now has a days-to-cover ratio of more than nine. The rise in its short interest by settlement date has been shown below:

2/15/2018: 15,752,208
1/31/2018: 15,167,296
1/12/2018: 15,015,778
12/29/2017: 14,682,131
12/15/2017: 14,261,400
11/30/2017: 13,285,297
11/15/2017: 12,716,708
10/31/2017: 13,740,648
10/13/2017: 15,131,925

Workday shares were last seen down 0.5% at $127.55, in a 52-week trading range of $80.61 to $131.18.