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Okta and Workday upgraded at Guggenheim on valuation metrics By

© Reuters. Okta (OKTA) and Workday upgraded at Guggenheim on valuation metrics
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By Sam Boughedda

Guggenheim analysts upgraded shares of Workday (NASDAQ:) from Sell to Neutral and Okta Inc (NASDAQ:) from Neutral to Buy in separate notes released on Monday.

The analysts maintained the firm’s price target on Workday shares at $142, telling investors they moved to upgrade the stock based on the “recent market turmoil” that has sent shares down below their current price target and even below their original target from August 11.

“WDAY shares have declined 23% since 8/10 (vs. the IGV down 23% and S&P500 down 10%). We continue to believe that it will be challenging for WDAY to hit its long-term targets of sustainable 20%+ subscription revenue growth and $10B of total organic revenue by FY26 (which is implied),” they wrote. “That said, we view WDAY shares at fairly valued at 5.7x EV/NTM Subscription, or ~1 turn higher than our estimated intrinsic value of WDAY’s existing recurring revenue if it was run hyper-efficiently, yet never grew (or declined) again.”

In addition, the analysts maintained the firm’s $65 per share price target on Okta, explaining that while they recognize the company is facing challenges that could take several quarters to address, they find the current valuation levels “too compelling to ignore.”

“Trading at an EV/NTM Recurring Revenue multiple of 3.6x, we believe the stock is currently trading below the intrinsic value of a typical Software company assuming no growth or declines (refer to our What Price is Right? Weekly note) and more than pricing in issues surrounding salesforce attrition, product delays, C-suite turnover, and negative headlines concerning security incidents,” the analysts explained.

“Okta was viewed as the premier asset in the Access Management space, and competitors in the space – FORG and PING –are being taken private at 8.9x and 8.2x EV/NTM Recurring Revenue, respectively. While our upgrade is not necessarily based on the potential of a similar outcome for OKTA (although we recognize the possibility), we see current levels offering asymmetrical risk/reward with little downside and significant upside potential,” the analysts added.

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