On Monday, CFRA announced a downgrade of Dayforce (NYSE: DAY) stock from Buy to Hold, adjusting the price target to $53.00, a reduction from the previous figure of $68.00. The firm's new target price is based on a valuation of 26.5 times its 2025 earnings per share (EPS) forecast, which remains at a premium compared to its peers due to Dayforce's robust growth in its customer base and the increase in active customers, which rose by 6% year-over-year in the first quarter.
CFRA has maintained its 2024 EPS forecast for Dayforce at $1.47 but has reduced the 2025 EPS estimate to $2.00 from $2.09. The revision reflects concerns about a possible slowdown in the company's revenue growth in the coming years. The analyst pointed to the decline in legacy Bureau revenue and a delay in the expected revenue boost from the Canadian government's payroll modernization project, now postponed until 2025.
The report also highlighted Dayforce's relatively high leverage, with a total debt-to-EBITDA ratio over the last twelve months of 5.0 times, significantly exceeding the 2.8 times average of its peers. This financial position is seen as a limiting factor for the stock's future performance, leading to CFRA's neutral stance on the company's outlook.
Despite the downgrade, CFRA remains positive about Dayforce's prospects for growth, noting the potential of new products like Dayforce Wallet and the company's expansion into international markets, including Asia, Africa, and Latin America. These strategies are expected to contribute to the company's traction with its Human Capital Management (HCM) cloud platform. CFRA forecasts a sales growth of 15% in 2024 and 13% in 2025, compared to the 22% growth rate achieved in 2023.
InvestingPro Insights
With Dayforce's (NYSE: DAY) recent stock performance and CFRA's adjusted outlook, investors may find the latest metrics from InvestingPro particularly informative. The company's market capitalization stands at $7.81 billion, reflecting investor valuation of the company's market position and future growth prospects. Dayforce's P/E ratio is notably high at 147.66, suggesting that investors are willing to pay a premium for its earnings, likely due to the robust growth in its customer base and expansion efforts.
However, the PEG ratio, which compares the P/E ratio to the earnings growth rate, is at a modest 0.63—indicating that the stock may be undervalued when factoring in its expected earnings growth. Additionally, Dayforce boasts an impressive gross profit margin of 48.37% over the last twelve months, which aligns with CFRA's recognition of the company's strong operational performance.
InvestingPro Tips highlight that Dayforce is expected to see net income growth this year and operates with a moderate level of debt. For investors seeking a deeper analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/DAY. Utilizing the coupon code PRONEWS24, readers can access these insights at a 10% discount on a yearly or biyearly Pro and Pro+ subscription, providing a more comprehensive understanding of Dayforce's financial health and market potential.
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