Software stock Workday is Tuesday's IBD 50 Stocks To Watch pick. The AI-based enterprise software stock recently successfully tested a key level on its chart. Analysts have high hopes for 2024 profits.
Workday develops and provides enterprise cloud applications using artificial intelligence (AI) and machine learning for financial management, human resources, planning and analytics.
The company serves the financial, health care, government, education and technology industries, including more than 50% of Fortune 500 companies.
Workday introduced its Elastic Hypercube Technology (EHT) business scenario modeling engine using embedded AI on July 11.
Software Stock Bounces Off Key Chart Level
Shares pulled back 3% on Tuesday and fell below the 21-day exponential moving average, in light trading action. Software application stocks fell particularly hard in sympathy with enterprise software stock Datadog, following the company's mixed Q2 earnings report and lower full-year revenue guidance.
Workday stock is extended from a cup base with a 206.68 buy point, according to MarketSmith pattern recognition. The software stock jumped 10% in heavy volume to gap above the 206.68 buy point, following the company's higher-than-expected April-ended quarterly results on May 25.
Shares have ridden the 10-week moving average on the way up, with a benign test of the line on the week of July 28, only to hit a 52-week high the following week.
The software stock sold off 4.4% on Aug. 2, along with other software stocks, on news of the Fitch Ratings downgrade of the U.S. credit rating. But KeyBanc wasn't fazed by the Fitch Rating news. On the same day, it raised its price target on Workday to 290 from 246 and maintained its overweight rating on the stock. Workday stock found support at its 21-day line.
Meanwhile, shares have gained over 35% this year so far, but have lost over 3% this month.
Earnings Show Big Improvement
Workday's quarterly earnings growth rate greatly improved to 58% in its fiscal Q1, up from 27% in the prior quarter and a decline of 10% two quarters ago. Its operating loss improved to $19.8 million vs. $72.8 million in the prior year's same quarter.
Quarterly sales growth slid to 17% in fiscal Q1 from 20% in the prior two quarters.
"Workday had a strong first quarter, underscoring the value proposition of the full Workday platform combined with our unique approach to artificial intelligence and machine learning," said Aneel Bhusri, co-founder and co-CEO of Workday, in the earnings release.
"Given these results, we are raising the low end of our fiscal 2024 subscription revenue guidance to a range of $6.550 billion to $6.575 billion, representing 18% growth over the prior fiscal year," said Workday CFO Barbara Larson in the May 25 Q1 earnings release.
Larson stepped down as CFO on June 12, with Zane Rowe taking over the key role. Rowe was the CFO of VMware for seven years.
Analysts See 46% Annual Profit Growth
Analysts expect 46% full-year EPS growth in fiscal 2024 and 20% in 2025. Workday reports its fiscal second-quarter results on Aug. 24, after the market close.
Workday ranks No. 1 out of 126 stocks in the computer software-enterprise group. The group ranks a respectable No. 26 out of the 197 IBD industry groups.
Lastly, mutual funds own 55% of shares, with 2,126 funds owning the enterprise software stock in June, up from 2,024 in March and 1,918 in December.
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