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Workday (NASDAQ:WDAY) was in the spotlight on Friday after the back-office software company raised its operating margin profile for the next couple of years, prompting praise from Wall Street.
Shares jumped more than 15% in early trading.
"WDAY's FQ2 pre-empted what we were expecting at Rising — a marked shift in tone toward delivering more margin & revised [medium-term] framework for ~15% growth and ~30% [operating margin] in FY27," Wells Fargo analyst Michael Turrin wrote in an investor note. "Expect shares to meaningfully re-rate on [a] shift to valuation." Turrin has an Overweight rating and $300 price target on Workday.
Looking ahead, Workday also said it still expects fiscal 2025 subscription revenue to be between $7.7B and $7.73B. The company also raised its adjusted operating margin guidance to 25.25%, up from 25%.
Mizuho analyst Siti Panigrahi reiterated his Outperform rating and $280 price target on Workday, even as the company reset its medium-term targets, lowering its growth guidance to 15%.
"While WDAY continues to see pressure from macro near-term (with elevated deal scrutiny and moderated headcount growth), Mizuho continues to believe Workday is well-positioned to become the preeminent vendor in back-office over the longer-term with several core drivers of growth," Panigrahi wrote in an investor note.
Morgan Stanley analyst Keith Weiss agreed with the prevailing sentiment, noting that the trade-off between growth and operating margin is "likely seen as positive."
“The decision to focus on margin improvement is a clearer path to delivering attractive EPS growth, but a lower growth profile could weigh on the multiple,” Weiss, who has an Overweight rating on Workday, wrote in an investor note.