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Why Should You Retain Workday (WDAY) Stock in Your Portfolio?

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A prudent investment decision involves buying stocks that have solid prospects and selling those that carry risks. At times, it is rational to retain certain stocks that have enough potential but are weighed down by tough market conditions.

Here we focus on Workday Inc. (WDAY - Free Report) , a stock with expected long-term earnings per share growth rate of 31.2%. The company’s earnings are expected to register growth of 4.9% and 37.5% in 2019 and 2020, respectively.

The company’s price performance over the past year looks impressive. Shares of Workday have gained 61.2%, substantially outperforming the industry’s rally of 10.3%.

Let’s delve deeper and analyze the prospects of the stock.

Growth Drivers

Workday delivered third-quarter fiscal 2019 non-GAAP earnings of 31 cents per share, surpassing the Zacks Consensus Estimate of 15 cents. The figure also improved 29.2% year over year.

Strong growth can primarily be attributed to a jump of 33.8% in revenues, which totaled $743.2 million. The figure outpaced the Zacks Consensus Estimate for revenues of $723 million. The robust top-line performance was driven by solid growth in subscription and professional revenues. Further, synergies from Adaptive Insights acquisition and strong product suite positively impacted the reported quarter’s revenues

During the reported quarter, Workday extended capabilities and tools in Workday HCM with new customer experience.

Workday has more than 8,500 customers. During the third quarter, the company added Bank of Montreal, Glencore International, and Piedmont Airlines, a subsidiary of American Airlines as its new HCM customers. The clientele now includes more Fortune 500 customers. This can be attributed to higher adoption of Workday Financial Management.

The company was ranked #3 on the list of the 100 Best Workplaces for Millennials by Fortune and Great Place to Work Institute. Additionally, the company was ranked #1 on the Fortune Future 50 list.

Workday recently went live on Adaptive Insights business planning cloud. The move is likely to aid Workday pursue its goal of emerging as an industry leader in better business decisions and operational expertise. It will also aid the company evolve as a provider of enterprise-level software solutions for financial management and human resource domains.

Workday unveiled Workday People Analytics, powered by artificial intelligence to aid customers with critical activities in their business.

Workday also partnered Duo Security and SkipFlag. We believe improving customer satisfaction rate and recent buyouts bodes well for its growth in the near term.

Encouraging Outlook

Total revenues for the fourth quarter are expected to be in the range of $775 million to $777 million. The Zacks Consensus Estimate is pegged at $764.7 million.

Workday raised fiscal 2019 guidance. The company now anticipates subscription revenues in the range of $2.375-$2.377 billion (previously $2.341-$2.348 billion). Professional services revenues are now expected to be around $433 million (previously $424 million).

Bottom Line

The aforementioned factors positively impacted Workday’s performance in the last reported quarter. In fact, the company outperformed the Zacks Consensus Estimate in the trailing four quarters, delivering average positive surprise of 46.5%. We believe the upbeat performance will continue in the quarters ahead, in turn providing investors enough reasons to retain the stock.

Zacks Rank & Stocks to Consider

Currently, Workday has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Upland Software (UPLD - Free Report) , Tesla, Inc. (TSLA - Free Report) and Twitter, Inc. (TWTR - Free Report) , each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Upland Software, Tesla and Twitter is currently pegged at 20%, 35% and 22.1%, respectively.

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