Workday stock price target lowered to $285 at KeyBanc on growth concerns

KeyBanc Capital Markets lowered its price target for Workday to $285 from $325, while maintaining an Overweight rating, citing "heightened uncertainty around near-term to mid-term growth trajectory." This adjustment comes despite Workday reporting strong Q2 fiscal results that exceeded expectations for current remaining performance obligations (cRPO), subscription revenue, and operating margin, alongside raised profitability guidance. However, concerns about calculated billings falling short and the non-organic nature of some revenue guidance increases are contributing to mixed analyst sentiment regarding the company's future growth prospects.

Analysis

Workday (WDAY) presents a mixed investment profile, marked by strong current financial performance juxtaposed with analyst concerns over its future growth trajectory. The company's second-quarter results surpassed expectations for key metrics including subscription revenue and operating margin, and it posted robust LTM revenue growth of 13.9% and a gross profit margin of 75.6%. Management subsequently raised guidance for operating margin to 29% and operating cash flow to $2.85 billion, both beating consensus and signaling a clear focus on profitability. However, this positive operational picture is clouded by several factors. Calculated billings fell short of expectations, a potential leading indicator of slowing demand. Furthermore, while Workday raised its fiscal 2026 subscription revenue guidance, analysts like KeyBanc noted this was primarily driven by the Paradox acquisition rather than organic growth. This has created a clear divergence in analyst sentiment; while some maintain positive ratings based on current execution, KeyBanc, Bernstein, and Oppenheimer have lowered their price targets, citing growth uncertainty and sector-wide multiple compression as key drivers for their caution.

Key Decisions for Investors

• Investors should scrutinize future calculated billings and the organic portion of subscription revenue growth, as these are the primary metrics causing analyst concern and represent the key risk to the investment thesis.
• Given the company's demonstrated commitment to profitability, evidenced by its 75.6% gross profit margin and upwardly revised operating margin and cash flow guidance, the stock may appeal to investors prioritizing strong fundamentals over speculative growth.
• The split in analyst ratings, with some lowering price targets due to growth fears and others maintaining buy ratings based on strong execution, suggests investors should remain cautious and await further clarity on the organic growth trajectory before significantly increasing their position.