BMO Capital reiterates Outperform rating on Workday stock with $285 target

Workday (NASDAQ:WDAY) continues to receive strong analyst support, with BMO Capital maintaining an Outperform rating and highlighting the company's "AI-centric innovation," new partnerships, and the acquisition of Sana. A key driver is Workday's ambitious FY28 free cash flow target of $15 per share, nearly double FY25 levels, which BMO believes will offset macroeconomic and competitive concerns. This positive outlook is reinforced by other analysts, who, despite some price target adjustments, generally affirm Workday's strategic evolution in the AI landscape, including a significant partnership with Microsoft and new flexible pricing models.

Analysis

Workday (WDAY) is receiving strong and widespread analyst endorsement following its recent user event, driven by a strategic focus on artificial intelligence. BMO Capital maintained its Outperform rating and $285 price target, citing a "blitz of AI-centric innovation," the acquisition of Sana, and a new partnership with Microsoft to integrate Azure AI into Workday's Illuminate platform. A key anchor for this positive outlook is the company's newly announced fiscal year 2028 financial target of $15 per share in free cash flow, a figure nearly double the expected FY25 level, which analysts believe provides a clear long-term growth trajectory. This sentiment is echoed across Wall Street, with Evercore ISI, Needham, and Bernstein affirming price targets in the $300-$304 range. While some analysts, like TD Cowen, have slightly moderated near-term price targets to account for a reset in medium-term growth expectations and a reduced FY27 subscription revenue forecast, the consensus remains firmly bullish on the long-term strategy. The company's financial health, underscored by a 76% gross margin, and its new flexible credit pricing model for AI services further bolster the case that it is well-positioned to capitalize on AI adoption and offset macroeconomic uncertainties.

Key Decisions for Investors

• Given the strong analyst consensus and price targets ranging from $265 to $304, investors may consider the current valuation an opportunity, viewing the recent strategic announcements as a significant de-risking of the company's long-term AI growth narrative.
• Investors should closely monitor the execution of Workday's AI strategy, particularly the adoption rates for its Illuminate platform and the tangible outcomes of the Microsoft partnership, as these are critical to achieving the ambitious FY28 free cash flow target of $15 per share.
• While the long-term outlook is positive, it is prudent to weigh this against the company's moderated medium-term growth forecasts, which could introduce volatility until the AI initiatives demonstrate clear revenue acceleration.