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Are long-lagging software stocks ready to rebound? With the major stock market indexes rallying about 2%, even Tableau Software ( DATA ) was up 4% by early afternoon Tuesday. But the real mover is enterprise software developer Workday ( WDAY ), back to work after an anxious Leap Year workday when it unveiled Q4 earnings and revenue that beat Wall Street — for the 13th time in 14 quarters — but then sucked some oxygen out of the room by guiding the current Q1 sales below analyst estimates. The stock edged down in after-hours trade Monday. No matter. Workday stock gapped up 9.1% after the morning bell, then slipped slightly, then rebounded to sit 9.8% higher at 66.40 in midafternoon trading in the stock market today , heading for a fifth straight up day, its ninth in the last 11. Workday stock is still 29% off a three-month high made last May. The entire IBD Computer Software-Enterprise industry group was up 2.3% by midafternoon, also on a five-day win run, boosted by Salesforce.com ‘s ( CRM ) big 11% jump after issuing solid earnings and outlook after the close Feb 24. Salesforce was up 2.3% in afternoon trade Tuesday, while legacy software king Oracle ( ORCL ) was up 2.9% to 37.85. Salesforce is the highest-ranked of the bunch, with an IBD Composite Rating of 88 out of a possible 99, tracking metrics such as earnings growth, stock market performance and other measures. But the Computer Software-Enterprise industry group as a whole ranks just 90th in performance out of 197 tracked by IBD. The Computer Software-Database group, where low-rated Tableau resides, ranks near the bottom, at 184, though both groups have been on an upswing since the second week of February, clambering back from steep losses the prior week. Oracle, Tableau and Workday still hold relatively low IBD Composite Ratings in the 40s. A little momentum at Workday? Analysts differ. They’re impressed, but also cautious. Citing Workday’s “strong billings” — up 44% — with financial management software customers “roughly doubling” year over year to 207 clients, FBN Securities analyst Shebly Seyrafi lowered his price target to 75 from 80 and retained his sector perform rating on Workday, not so much on any weakness at Workday but “due to recent market multiple contraction.” And while revenue guidance for Q1 came in below analyst expectations , “billings guidance was above,” Seyrafi wrote in a research note issued Tuesday. “We are also impressed by WDAY’s strong degree of visibility,” he said. Unearned revenue of $900 million grew by 42%, but noncancelable backlog — not on the balance sheet — grew by 62% to $1.56 billion, he noted. “This results in the combination of unearned revenue and backlog at $2.5 billion, up 54%. Since this represents 82% of our estimated next-eight-quarter subscription revenue, up from 72% at the end of fiscal 2015, WDAY’s visibility has increased.” Similarly, analyst David Hynes lowered Canaccord Genuity’s price target to 75 from 95 but reiterated a buy rating for Workday. “Lots of things happening at Workday,” he wrote in a research note, citing “record new customer adds, Fortune 500 go-lives, triple-digit pipeline growth, improving competitive win rates, increasing attach rates, new SKUs set to hit the market in (the current) fiscal 2017, and the list goes on.” Those new SKUs — stock keeping units, or individual products — in planning, learning management and student software are expected to add “more than” a $5 billion total addressable market for Workday to work over, co-founder and CEO Aneel Bhusri told analysts in a post-earnings conference call late Monday. That’s on top of Workday’s core financial management and human capital management (HCM) software product markets. Then again, Brean Capital analyst Yun Kim warned that billings growth decelerated to 42% in fiscal 2016 from 69% in 2015. “Its fiscal 2017 billings guidance calls for modest 31% growth,” Kim wrote in a research note issued Tuesday. “While overall FY17 revenue and billings guidance was mostly positive, we believe its outlook for flat margins could disappoint some investors,” Kim said. Brean Capital rates Workday a hold with a 60.45 price target. “Overall, given lack of transparency into its new business bookings, we believe there will likely be a high degree of uncertainty that exists among investors regarding its true sales momentum,” Kim wrote. Evercore ISI analyst Kirk Materne lowered his price target to 75 from 95 but maintained a buy rating. “Overall, we believe the longer-term trends in the business remain positive, and WDAY remains one of the best multiyear growth stories in software,” he said in a Tuesday research note. “But given that the market remains wary of high valuation SaaS (Software as a Service) names, investors will need to take a long-term view.” For the current Q1 2017, Workday guided revenue below analysts’ views to a range of $337 million to $339 million but didn’t forecast earnings. Analysts polled by Thomson Reuters expect on average a Q1 per-share loss minus items of 2 cents, flat with a year ago, on $343.3 million in revenue vs. Q1 2016’s $251 million. Scalper1 News
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