Workday Earns Its Upside The Old-Fashioned Way: The Beat-And-Raise Quarter

Commenting on Workday Inc (NYSE: WDAY)'s second-quarter results, UBS said the company has earned its upside the old-fashioned way, with a beat-and-raise quarter.

Following the results, the firm maintains its Buy rating on the shares of Workday and raised its price target from $115 to $121.

Mid-morning Thursday, shares of Workday were rallying 4.92 percent to $37.85.

Q2 Print Revealed Broad-Based Strength

Analyst Ian Strgar noted that the company delivered a sizeable beat across key metrics, with revenues of $525 million exceeding the Street estimate of $507 million, operating margin coming in 200 basis points above estimates at 9 percent, and earnings per share of $0.24, ahead of the 15-cent consensus estimate.

Operating cash flow was at $15 million versus expectations of a negative $7 million, the analyst added.

The analyst also indicated that the company raised its 2018 revenue estimate from $2.038 billion–$2.0538 billion to $2.093 billion-$2.100 billion and lifted the operating margin target from 6–7 percent to 8 percent.

On a more sour note, the firm said billings of $547.8 million missed Street expectations of $549.5 million, although stating that the company continued to deflect investor focus away from this metric, post 606 implementation.

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Progress Across All Areas

UBS believes the company's strong second-quarter performance indicated that it is making progress across all areas, with the company taking share in the back-office cloud application space.

"We believe that WDAY will grind higher on sustained top-line momentum (Q2 revs grew north of +40% y/y) and steady margin expansion," the firm said.

The firm sees the Workday Rising analyst session on Oct. 10 as an upcoming catalyst.

Raising Estimates

UBS raised its estimates across the board, with the third quarter revenue estimate increased from $518 million to $540 million, billings from $572 million to $576 million, operating income from $21 million to $30 million and earnings per share from 9 cents to 12 cents.

The firm also increased its 2018 revenue estimate from $2.053 billion to $2.10 billion, operating income estimate from $139 million to $167 million and earnings per share estimate from 59 cents to 76 cents. The billings estimate was nudged down from 2.373 billion to $2.367 billion.

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