Analyst Note| Julie Bhusal Sharma |
Wide-moat Workday reported excellent first-quarter results, as revenue and adjusted EPS both exceeded our expectations. Workday experienced broad-based strength due to general digital transformation acceleration by enterprises--as Workday continues to be in a league of its own concerning cloud-only and cloud-first human capital management software. With much opportunity ahead for Workday to take more of total ERP share from legacy providers, like SAP and Oracle, Workday has plans to ramp up its headcount significantly. Workday’s incremental success wasn’t contained to this past quarter--as management has upped guidance for the fiscal year. We are raising our fair value estimate for wide-moat Workday to $229 per share from $219 per share. Our estimates for stronger near-term growth more than offset a modest increase in our estimated tax rate for Workday in light of potential U.S. tax changes. We consider Workday to be fairly valued, which contrasts with its peers SAP and Oracle, which we consider to be overvalued at the moment.