Posted on November 21st, 2022
Workday Inc. (WDAY) underperformed the S&P 500, seeing a loss of approximately 50% compared to the S&P 500’s loss of about 18% over the past year. Hedge funds were actively buying shares despite recent performance fluctuations, and the stock impressively rose to the top of the WhaleWisdom Heatmap in the third quarter of 2022.
Workday is a cloud-based human capital management (HCM), financial management, enterprise performance management (EPM), and student information system software, vendor. Its cloud-based software solutions offer organizations critical business solutions and analytics tools worldwide. HCM solutions provide talent management, performance management, compensation, and succession planning capabilities to help customers attract, develop, and retain their workforce. Financial Management solutions include automated processes that allow clients to divert their time and focus away from transaction processing and more on the big picture through data analytics. The company’s student information systems are designed to support students and leaders of educational institutions through flexible programs. EPM solutions include financial management, talent management, enterprise planning, and spend management. Workday brings in revenue from client subscriptions and software sales through a software-as-a-service (SaaS) delivery model.
Despite seeing stock volatility in the past year, the Coronavirus pandemic considerably impacted Workday. Government restrictions and corporate safety measures pushed workforces to remote and hybrid work schedules. Workday was able to capitalize on the shift to remote work and increase its corporate client subscriptions as more and more companies migrated to the cloud and needed applications to efficiently manage critical business operations such as payroll and human resources. Workday has invested in research and development and has made strategic acquisitions over the years to diversify and expand its offerings for a more resilient business model.
Hedge Funds Are Buying
Workday has the attention of hedge fund managers, who were actively buying the stock in the third quarter. Hedge funds’ aggregate 13F shares held in the third quarter increased to about 63.7 million from 61.0 million, an increase of approximately 4.4%. Of the hedge funds, 47 created new positions, 80 added to an existing one, 28 exited, and 67 reduced their stakes. In contrast, institutions were selling, and aggregate holdings decreased mildly by about 0.7% to approximately 171.4 million from 172.4 million. The long-term 13F metrics between 2014 and 2022 suggest that despite Workday’s stock price volatility this year, it remains on a slow upward trend.
Encouraging Multi-year Estimates
Analysts anticipate earnings will rise through 2024, with year-over-year increases in growth that could bring earnings to $4.45 per share by January 2024, up from a projected $3.39 for 2023. Revenue predictions are also favorable, with revenue expected to increase to about $7.4 billion by January 2024, up from an estimated $6.2 billion in January 2023.
Analysts Adjust Ratings
Due to recent market volatility and macro conditions, analysts appear to be proceeding with caution. Analyst John DiFucci of Guggenheim Investments upgraded the firm’s rating on Workday to Neutral from Sell, viewing shares as fairly valued while noting that Workday has a challenge in meeting long-term targets for subscription revenue growth. Analyst Brian White of Monness, Crespi, Hardt & Co., Inc. downgraded Workday to a Neutral rating from a Buy, noting that the next year will be challenging as the economy grows weaker. White shared optimism that Workday will continue expanding its cloud platform’s reach.
Favorable Outlook Beyond 2022
While Workday’s growth has slowed, hedge funds are still buying shares, and earnings estimates through 2024 are encouraging. Demand for the company’s cloud-based solutions should continue to grow revenue, and the technology stock presents an attractive long-term investment.