Workday downgraded as buyout talk prices in $50B-plus deal

Workday shares fell 2.8 percent in premarket trading Monday after BTIG and Deutsche Bank downgraded the stock, saying growth expectations are too optimistic after reports of a potential private-equity takeover.

BTIG cut Workday to Neutral from Buy without a price target, telling investors the shares are "priced for a buyout" following recent reports. The firm does not believe Workday is likely to pursue meaningful margin expansion while its low double-digit organic subscription revenue growth continues to slow, the analyst said in a research note.

BTIG sees potential share upside if the private-equity firm secures financing for a $50 billion-plus takeover of Workday. However, it now views the stock's risk-reward as balanced "even if talks with the private-equity firm break down," the note said.

Deutsche Bank also downgraded Workday on Monday, saying the risk-reward is "more balanced" after shares rose sharply last week on the acquisition report. The bank's move follows a surge that priced in a potential buyout premium before any deal is confirmed.

The downgrades come as Wall Street hits the pause button on a stock that rallied on takeover speculation. Workday, an enterprise software maker competing with Oracle and SAP in human-resources and finance applications, trades at a valuation that already reflects a deal, according to the analysts.

For holders, the downgrades signal limited upside unless a buyout is confirmed at a premium. Investors will watch for any financing announcement from the private-equity firm, which would determine whether the $50 billion-plus takeover proceeds.

This article is for informational purposes only and does not constitute investment advice.