By Sam Boughedda
In a note to clients on Thursday, a Citi analyst initiated coverage of Dropbox (NASDAQ:DBX) at Neutral with a $24 price target and Workday (NASDAQ:WDAY) at neutral with a $186 price target.
In a wide-ranging note on the US application software sector, the analyst said that with "elevated recession concerns and back office software likely deprioritized, we favor quality names with strong execution, more resilient pockets of spend with potential catalysts, and a fair valuation."
He believes the elevated recession risks will likely remain the dominant theme in their coverage near term, leading them to prefer quality names with strong execution, targeting more resilient areas of spend with strong ROI and platform consolidation potential, and have a favorable model and valuation framework.
"Our proprietary CFO and CHRO surveys conducted with Citi's Research Innovation Lab suggest both HR Tech and Financial Software are likely to be relatively resilient in a recessionary environment. Despite both budget categories expected to grow below overall software growth, 86% of CFOs indicate a flat-to-up change in Financial Mgmt software spend in a recession while 77% of CHRO respondents indicate HR software spend would decline by less than employee headcount," added the analyst.
His key takeaways include: "Share gains for CDAY, share gains for WDAY financials, increased automation and consolidation for CFOs, and slowing HR module adoption for CHROs."