Buy Workday, a favorite hedge fund cloud play, before earnings on improving sales, Piper Jaffray says

Workday co-founders and co-CEOs Aneel Bhusri (left) and Dave Duffield (center) applaud their company's first trade after their IPO at the New York Stock Exchange on Oct. 12, 2012.
Brendan McDermid | Reuters

Investors should buy Workday shares because of its progress in selling more human resources cloud software services to companies, according to Piper Jaffray, which raised its rating on the firm to overweight from neutral.

"We are upgrading WDAY … as our checks came back the strongest in recent memory, suggesting that the company's fundamentals have improved materially since last quarter, and we believe that a premium valuation is warranted," analyst Alex Zukin wrote in a note to clients Friday. "We believe there is additional upside" on the earnings report.

Workday is slated to report fourth-quarter earnings on Feb. 27. The company announced it won a contract with Wal-Mart on Jan. 11, according to a SEC filing.

Chamath Palihapitiya, founder and CEO of Social Capital, told the Sohn San Francisco Investment Conference in October that Workday will be worth $100 billion in 10 years. The company's market value is currently a little more than $17 billion.