Workday's Q4 Beat Not Enough To Budge Wunderlich From A Hold Rating

“Given that the upside in 4Q and in the FY18 outlook is primarily related to large HR deal activity, we maintain our thesis that Workday Inc (NYSE: WDAY) is not showing enough incremental traction outside of its core business to warrant an additional premium to the stock's current valuation,” Wunderlich’s Ryan MacDonald said in a note.

The analyst reiterated a Hold rating on the company, while raising the price target from $78 to $86.

Robust Q4

MacDonald explained that the rating was maintained following Workday’s robust close to fiscal 2017, during which billings, EPS and revenue were all ahead of the consensus expectations, which had been lowered following the conservative guidance provided after the weak Q3.

The company reported robust fourth-quarter 2017 results, with revenue of $436.7 million, representing 35 percent year-on-year growth and beating the consensus forecast, driven mainly by subscription revenue, which grew 39 percent year-on-year.

Related Link: Workday Could Have Additional Upside On Q4 Earnings, Even After A 29% Run

The non-GAAP EPS for the quarter was also above consensus at $0.07, while billings beat expectations by coming in at $646.5 million.

Workday generated operating cash flow of $109.5 million during Q4, ending the quarter with about $2 billion in cash.

“Following weak commentary in November, business bounced back in December and January,” MacDonald stated, while adding, “WDAY closed out FY17 with 1528 HCM (Human Capital Management) customers, including 136 of the Fortune 500, 320 core Financials customers, and 452 Expense customers.”

Guidance

The company guided to Q1 2018 revenue of $467 billion–$468 million, well ahead of the consensus forecast, with subscription revenue being guided to $392 million–$393 million.

Workday guided to non-GAAP operating margin of 8–9 percent for Q1.

For FY 2018, the company guided to revenue of $2,005 million–$2,025 million, again beating the consensus, with operating margin guidance of 5–6 percent.

At last check in Tuesday's pre-market session, shares were down 6.03 percent at $84.75.