Ceridian Earnings: HCM Provider Continues on Impressive Growth Trajectory; Shares Attractive

Narrow-moat Ceridian CDAY reported a strong third quarter, which surpassed both our top-line growth and profitability expectations. Following the result, we have lifted our near-term assumptions to align with updated guidance and raise our fair value estimate to $86 from $83 primarily due to the time value of money. At current prices, Ceridian shares trade at a sizable 28% discount to our valuation, and we continue to believe the market is underappreciating the firm’s ability to displace incumbent providers and take further share, particularly in international markets.

Coinciding with the release, Ceridian announced joint CEO Leagh Turner will depart the firm in November 2023 after a five-year tenure. While we are disappointed to see another leadership change in close succession to the announced departure of CFO Noemie Heuland, we do not expect Turner’s departure to affect the firm’s strategy or outlook.

Ceridian recently announced plans to rebrand as “Dayforce,” signaling an ongoing commitment to the firm’s flagship cloud human capital management, or HCM, platform. Dayforce was acquired by Ceridian in 2012 and rapidly grew to about 75% of group revenue in 2023 from 41% in 2017, fueled by platform migrations and new client wins. Except for an announced amortization charge of $21 million per quarter for two years relating to the Ceridian brand, we don’t factor in additional profitability impacts.

Third-quarter revenue rose 20% year on year, reflecting healthy Dayforce client base growth aided by internal platform migrations and continued traction in the enterprise market, and uplift from interest income revenue. These tailwinds were once again offset by declining revenue from legacy solutions and flat Powerpay revenue. Ceridian continues to skew upmarket and successfully sell a broader suite of solutions with the support of system integrator partners, fueling average Dayforce recurring revenue per client growth of 17% at quarter-end, marginally ahead of our forecasts.