Why Workday Stock Rose 7% despite Weak Q1 Results

Workday (NYSE:WDAY) stock rose 7% in after-hours trading on Wednesday following its results for the first quarter of fiscal 2021. Notably, the quarter ended on April 30, 2020. The company posted mixed results in the first quarter. Although the sales beat analysts’ consensus expectation, the EPS missed the estimates. However, the shares rose after the company announced partnerships with Salesforce (NYSE:CRM) and Microsoft (NASDAQ:MSFT).

According to a CNBC report, “Workday customers will be able to run Workday Adaptive Planning on the Microsoft Azure cloud…Workday is also working with Salesforce to develop applications that will help businesses more easily return to work.”

Workday’s Q1 earnings results

In the first quarter, Workday reported an adjusted EPS of $0.44 compared to $0.43 in the first quarter of fiscal 2020. The earnings missed analysts’ consensus estimate of $0.48 per share. Workday generated sales of $1.02 billion—a growth of 23.4% from the first quarter of fiscal 2020. The company beat analysts’ consensus revenue estimate of $1.0 billion. In the first quarter, Workday’s subscription sales rose 25.8% YoY (year-over-year) to $882.0 million due to its expanding customer base.

In the first-quarter earnings release, Workday CEO Aneel Bhusri said, “The cloud is playing a critical role in today’s climate, with organizations leaning on Workday to pivot.” Also, Workday CFO Robynne Sisco said, “While we believe we remain well-positioned for the long term, we are reducing our fiscal 2021 subscription revenue guidance to account for the near-term impact from COVID-19.” The company expects subscription sales between $3.67 billion and $3.69 billion in fiscal 2021. The company expects subscription sales between $913 million and $915 million in the second quarter.

Wall Street analysts expect Workday to report an adjusted EPS of $0.54 on revenue of $1.05 billion in the second quarter. Analysts also expect Workday’s revenues to rise by 17.1% YoY in fiscal 2021 to $4.25 billion. The sales could rise by 18.4% YoY in fiscal 2022 to $5.0 billion. The adjusted earnings will likely rise by 13.8% YoY in fiscal 2021 to $2.14 per share. However, the profits could rise by 25.7% YoY to $2.69 per share in fiscal 2022.

Analysts’ recommendations and target price

Among the 35 analysts following Workday stock, 17 recommend a “buy,” 14 recommend a “hold,” and four recommend a “sell.” Wall Street analysts’ mean target price on the stock is $183.15, which implies a 7.5% gain from the current level of $170.38. The consensus target price for the stock has risen from $175.94 in April—a growth of 4.1%.

Many analysts revised their target price for Workday stock after its first-quarter earnings report.

  • Stifel increased its target price from $174 to $190.
  • Jefferies increased its target price from $146 to $180.
  • RBC Capital increased its target price from $194 to $200.
  • Oppenheimer increased its target price from $165 to $190.
  • Citigroup increased its target price from $165 to $173.
  • Needham increased its target price from $175 to $200.
  • Evercore ISI increased its target price from $195 to $205.
  • Cowen and Company increased its target price from $160 to $175.
  • Mizuho increased its target price from $175 to $220.
  • Wedbush decreased its target price from $206 to $196.
  • Deutsche Bank increased its target price from $150 to $180.
  • Monness Crespi Hardt increased its target price from $195 to $215.
  • Barclays increased its target price from $143 to $162.
  • Piper Sandler increased its target price from $150 to $181.

Stock returns

Workday stock rose 1.2% on Wednesday and ended the day at $170.38. At this closing price, the company’s market cap is $39.9 billion. Notably, the stock is trading 24.9% below its 52-week high of $226.83 and 58.1% above its 52-week low of $107.75.

Based on the closing price on Wednesday, Workday stock was trading 7.8% above its 20-day moving average of $158.11. The stock is also trading 17.4% above its 50-day moving average of $145.15 and 5.8% above its 100-day moving average of $161.02. Workday’s 14-day relative strength index number is 64. The number indicates that the stock is approaching overbought levels.

Workday stock has a middle Bollinger Band level of $158.11, while its lower Bollinger Band level is $144.34. On Wednesday, the stock closed near its upper Bollinger Band level of $171.89, which indicates that it’s overbought.

On Wednesday, Oracle (NASDAQ:ORCL) and SAP (NYSE:SAP) returned 0.80% and 1.24%, respectively. The S&P 500 and the Dow Jones Industrial Average returned 1.48% and 2.21%, respectively. Read Should US Stock Market Crash Proponents Admit Defeat? to learn more.