Preparing For Workday's Q2 Results

Workday Inc (NYSE: WDAY) is scheduled to report its second-quarter results on Aug. 30, and analysts at Credit Suisse are expecting the company to report "at least" an in-line quarter. The firm's Michael Nemeroff maintains a Neutral rating on Workday's stock with an unchanged $94 price target.

Workday is expected to report revenue that is in-line with the analyst's estimate of $506.8 million (consensus estimate of $506.9 million) which would represent a 35.6 percent year-over-year growth rate. The company did see momentum in the prior quarter, which featured the highest net new ACV year-over-year growth rate in three years (see Nemeroff's track record here).

Subscription revenue for the quarter is expected to be at least $421.8 million (37.8 percent growth from last year), the analyst added. There is also little reason to doubt management's subscription growth guide of +3 percent and +5 percent quarter over quarter for the third and fourth quarter, respectively.

Despite expectations for a positive quarter, the analyst cites the stock's current premium valuation as a reason not to be a buyer at current levels. Specifically, the stock is trading at 8.4x 2018 EV/sales which are above the group average of 5.0x but a more appropriate multiple would be 7.5x which implies a $94 price target.

Finally, the analyst hinted his multiple could move higher over time if the company shows signs of accelerated momentum in the large enterprise core Financials deployment.

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