Back to top

Image: Bigstock

Here's Why Workday (WDAY) is a Solid Portfolio Pick Now

Read MoreHide Full Article

Shares of Workday, Inc. (WDAY - Free Report) have climbed 49.6% over the past year, driven by improved market demand across its portfolio on the back of a flexible business model and solid cash flow. Earnings estimates for the current and next fiscal year have increased 25.7% and 14.1%, respectively, since November 2022, implying robust inherent growth potential. With healthy fundamentals, this Zacks Rank #2 (Buy) stock appears to be a solid investment option. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment Research
Image Source: Zacks Investment Research

Growth Drivers

Headquartered in Pleasanton, CA, Workday is a leading provider of enterprise-level software solutions for financial management and human resource domains. The company’s cloud-based platform combines finance and HR in a single system that makes it easier for organizations to provide analytical insights and decision support. Apart from Financial Management and Human Capital Management (HCM) solutions, the company offers applications related to Payroll, Time Tracking, Recruiting, Learning, Planning, Professional Services Automation and Student.

Workday’s revenues continue to be aided by high demand for its HCM and financial management solutions. The company’s cloud-based business model and expanding product portfolio have been the primary growth drivers. Moreover, the growing clout of Workday Prism Analytics and Adaptive Insights business planning cloud offerings holds promise. Based on its expanding product portfolio, we believe that Workday has strong growth prospects.

Workday’s HCM suite of applications demonstrates solid growth momentum, driven by the transition of organizations to the cloud. A steady flow of customers portrays a high customer satisfaction rate, which bodes well for its long-term business model. Workday is also gaining traction in the international market, driven by higher digital transformation initiatives across Finance and HR domains, in tune with the evolving market conditions.

The company is expanding its portfolio beyond core HCM solutions into the financial domain. It is customizing them for diverse industries and verticals, such as education, the public and financial services, among others. This has helped it witness strong renewals and expand its customer base as business enterprises aim to consolidate spend and improve efficiency levels. This augurs well for the long-term growth of the company.

With solid demand trends, the company is confident about its growth opportunities in fiscal 2024. It plans to focus on higher investments in key industries and innovation efforts to expand its footprint within the partner ecosystem. For fiscal 2024, the company raised its guidance for subscription revenues to the range of $6.570-$6.590 billion from the previously estimated range of $6.550-$6.575 billion, indicating growth of 18% year over year. Professional services revenues are expected in the range of $630-$650 million.

It has a long-term earnings growth expectation of 26.8% and delivered an earnings surprise of 15.4%, on average, in the trailing four quarters.

Other Key Picks

Arista Networks, Inc. (ANET - Free Report) , carrying a Zacks Rank #2, is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has a long-term earnings growth expectation of 20.4% and delivered an earnings surprise of 12%, on average, in the trailing four quarters.

It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. Arista is increasingly gaining market traction in 200- and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations.

United States Cellular Corporation (USM - Free Report) , sporting a Zacks Rank #1, is the fourth largest full-service wireless carrier in the United States. The company provides a range of wireless products and services, and a high-quality network to increase the competitiveness of local businesses and improve the efficiency of government operations.

U.S. Cellular has taken concrete steps to accelerate subscriber additions and improve churn management. The company aims to offer the best wireless experience to customers by providing superior quality network and national coverage. It is well-positioned to support the investment required for network enhancements, including the deployment of 5G technology. The company is well-positioned for continued demand for broadband.

Comtech Telecommunications Corp. (CMTL - Free Report) , carrying a Zacks Rank #2, is another solid pick. Headquartered in Melville, NY, the company is a leading global provider of next-generation 911 emergency systems and secure wireless communications technologies to commercial and government customers.    

Comtech’s key satellite earth station modems incorporate forward error correction and bandwidth compression technologies, which enable its customers to optimize their satellite networks by either reducing their satellite transponder lease costs or increasing data.

Published in