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PacCrest Taking 'Money Off The Table' At Workday

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Workday Inc WDAY 1.36% shares have been on an upswing since February. Pacific Crest’s Brendan Barnicle downgraded the rating for the company from Overweight to Sector Weight, citing the stock as among “the most expensive names in SaaS.”

Workday’s shares have gained 57 percent from their February 9 lows. “While still an industry leader, it is likely that Workday's competitive position could be more uncertain over the remainder of the year, and billings could still face a headwind from changes in billing terms,” analyst Brendan Barnicle wrote.

Workday’s shares are trading at the high end of the SaaS group. Barnicle said, however, that against the current environment, it was unlikely for the SaaS sector in general, and for the company in particular, to return to historical multiples in 2016.

More Aggressive Competition

Over the past year, Oracle Corporation ORCL 0.29% and SAP SE (ADR) SAP 0.64% have been posing more aggressive competition for Workday. The analyst added that it has taken Workday longer to finalize its Financials product than was anticipated.

“While we find the Financials product compelling, we are increasingly concerned that competition will create market uncertainty this year, which is likely to limit Workday's upside,” the Pacific Crest report noted.

Headwinds From Billing Changes

Barnicle expects billing changes to continue to be headwind in FQ1. He added that while Workday is unlikely to miss expectations, the change in billing terms may impact April results and continue to be a headwind if the company signs more Financials deals.

Apr 2016Pacific CrestDowngradesOverweightSector Weight
Apr 2016Piper JaffrayAssumesNeutral
Mar 2016MacquarieInitiates Coverage onUnderperform

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