Workday Inc (NYSE: WDAY) will benefit from the replacement of aging business planning systems installed in a rush during the historic Y2K panic of 15 years ago, an analyst said Monday.
Brean's Sarah Hindlian launched coverage on Workday Monday with a Hold rating and $86 target.
"We expect Workday to be a clear winner," Hindlian said. "The questions are: when, by how much, and at what valuation?"
Workday, down 17 percent in the past 12 months, fell sharply after posting fourth-quarter results in February. Shares closed Monday at $83.87, up $1.31.
Given a typical 15- to 25-year life-cycle for enterprise resource planning software, Hindlian expects "replacements to pick up and Workday to have a seat at the table."
In the run-up to the year 2000, companies worldwide spent an estimated $300 to $400 billion or more to fix computer software that failed to distinguish between the years 1900 and 2000.
With the need to replace those now-creaking corporate software systems that manage personnel and finance, Hindlian said Workday's subscription model may offer a cost advantage versus legacy on-premise vendors.
But Workday is replacing tools that are complex and therefore expensive to update, and the products are a slow sell and take time to replace, Hindlian said.
A key to the company's potential growth rate is acceptance of its financial management tools, according to the analyst. The company is best-known for its personnel management software.
Latest Ratings for WDAY
| Mar 2015 | Brean Capital | Initiates Coverage on | Hold | |
| Feb 2015 | JP Morgan | Maintains | Neutral | |
| Feb 2015 | Nomura | Maintains | Neutral |
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