Results: Workday, Inc. Exceeded Expectations And The Consensus Has Updated Its Estimates

Investors in Workday, Inc. (NASDAQ:WDAY) had a good week, as its shares rose 2.4% to close at US$205 following the release of its second-quarter results. It looks like a credible result overall - although revenues of US$2.6b were what the analysts expected, Workday surprised by delivering a (statutory) profit of US$2.57 per share, an impressive 158% above what was forecast. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.

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After the latest results, the 40 analysts covering Workday are now predicting revenues of US$10.7b in 2027. If met, this would reflect a reasonable 5.0% improvement in revenue compared to the last 12 months. Per-share earnings are expected to expand 11% to US$5.75. Before this earnings report, the analysts had been forecasting revenues of US$10.7b and earnings per share (EPS) of US$4.17 in 2027. Although the revenue estimates have not really changed, we can see there's been a very substantial lift in earnings per share expectations, suggesting that the analysts have become more bullish after the latest result.

View our latest analysis for Workday

The consensus price target rose 12% to US$206, suggesting that higher earnings estimates flow through to the stock's valuation as well. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on Workday, with the most bullish analyst valuing it at US$275 and the most bearish at US$92.00 per share. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.

Of course, another way to look at these forecasts is to place them into context against the industry itself. It's pretty clear that there is an expectation that Workday's revenue growth will slow down substantially, with revenues to the end of 2027 expected to display 10% growth on an annualised basis. This is compared to a historical growth rate of 15% over the past five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 16% annually. Factoring in the forecast slowdown in growth, it seems obvious that Workday is also expected to grow slower than other industry participants.

The Bottom Line

The most important thing here is that the analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards Workday following these results. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting that it's tracking in line with expectations. Although our data does suggest that Workday's revenue is expected to perform worse than the wider industry. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.

With that in mind, we wouldn't be too quick to come to a conclusion on Workday. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple Workday analysts - going out to 2029, and you can see them free on our platform here.

We also provide an overview of the Workday Board and CEO remuneration and length of tenure at the company, and whether insiders have been buying the stock, here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.