Analyst Note| Julie Bhusal Sharma |
Wide-moat Workday posted strong fourth-quarter results, as revenue and adjusted EPS both exceeded our expectations. During a challenging year hampered by pandemic-induced demand slowdowns, the company's performance underlines our continued thesis on the resiliency of Workday's business model. Workday's human capital management, or HCM, software played a crucial role in its overall strength, with many enterprises embarking on digital transformation journeys. However, management does forecast slower growth for subscription revenue in fiscal 2022 due to a lag in recognition. Due to the time value of money as we roll our valuation model, we are raising our fair value estimate for wide-moat Workday to $219 per share from $198 per share. Combined with Workday stock falling 7% upon the news, Workday is approaching our fair value, and is within 3-star territory. We think this could mark a nice opportunity for investors considering that many other high-quality software stocks within our coverage remain overvalued, despite the tech sell-off.