Workday Stock Is 'Undervalued,' Poised For Growth: Analyst

Bank of America’s Brad Sills kept a Buy on Workday with a $265 price target after channel checks showed solid deal momentum across commercial, healthcare and financial-services customers and strong demand for core HCM and HCM add-ons (Extend, talent-acquisition), with slightly firmer trends in Europe and optimism into 2026. Sills models robust cRPO growth (bullish Q3 +16.5%, Q4 +15.5% YoY), projects Q3 revenue of $2.42bn and EPS of $2.21, and expects margins to be a beat-and-raise story (Q3 28%, FY26 28.9%) on the path to a 35% fiscal‑2028 operating margin, arguing this supports credible free cash flow expansion and could dispel investor AI‑laggard concerns. He also highlights valuation upside—stock trading at ~14x calendar‑2027 FCF (0.6x when adjusted for mid‑20s growth) versus software peers at 1.2–2x—and cites international expansion, mid‑market wins and platform deals as catalysts; WDAY was trading around $229 (-0.76%) at last check.

Analysis

Bank of America analyst Brad Sills maintained a Buy on Workday with a $265 price target after channel checks showed solid deal momentum across commercial, healthcare and financial-services customers and robust demand for core HCM and HCM add-ons such as Extend and talent-acquisition products. Partners report slightly firmer trends in Europe and growing optimism into 2026; shares were trading near $229.07, down about 0.76% at the last check.

Sills models materially stronger backlog metrics, forecasting a bullish third-quarter cRPO growth of 16.5% and fourth-quarter cRPO of 15.5% year-over-year, and projects Q3 revenue of $2.42 billion with EPS of $2.21. He expects margins to be a beat-and-raise story (Q3 28%, fiscal 2026 28.9%) on a path to a 35% fiscal‑2028 operating margin and argues that a reset in expectations makes credible free cash flow expansion more achievable.

Valuation is highlighted as a potential upside catalyst: the stock trades at about 14x calendar‑2027 FCF (0.6x when adjusted for mid‑20s growth), below software peer averages of 1.2x–2x, while catalysts include international expansion, mid‑market wins and platform deals. Key risks are execution on margin expansion, sustaining deal momentum and shifting investor perception on Workday’s AI positioning; repeated beat‑and‑raise quarters are needed to convert sentiment into multiple expansion.

Key Decisions for Investors

• Consider adding to positions on meaningful pullbacks toward the low‑$220s given the $265 target and the valuation gap versus software peers
• Monitor Q3 cRPO, reported revenue of $2.42bn and EPS versus the $2.21 estimate as immediate catalysts that could validate the upbeat channel checks
• Require consecutive beat‑and‑raise quarters and improving free cash flow conversion before increasing size materially, otherwise limit exposure or hedge until margin trajectory is confirmed
• Watch commentary on AI product adoption and Europe/mid‑market traction in the print and calls; deterioration in these areas should trigger reassessment