Workday Retains Buy Rating at Canaccord After Results

Workday shares were lower nearly 14% on Friday as Canaccord Genuity said it is retaining its buy rating on the stock.

“Stepping back, it fails the test of logic to assert that a month of spotty execution invalidates the long-term probability that Workday is at the forefront of a major rip- and-replace upgrade cycle in mid- and large-market ERP,” analyst Richard Davis said. “As easy as it would be to run screaming from this stock, the share price already largely reflects the slower growth rates that we have forecast.”

Davis noted that cloud application software firms with a revenue growth and free cash flow margin of about 40%, which is the case with Workday, are valued about 6.0-6.5x 2017E enterprise value/revenues and at the after-hours price of $72, WDAY is valued slightly above that range on what it says are now “hopefully conservative estimates.”

“While the firm deserves some time in the penalty box, a few weeks of poor execution is not a sufficient basis for us to downgrade the shares from buy.”