On Tuesday, Evercore ISI adjusted its perspective on Teradata Corporation (NYSE:TDC) shares, a cloud-based data analytics company, by reducing its price target from $46.00 to $34.00. Despite this change, the firm maintained its Outperform rating on the stock. The adjustment followed Teradata's second-quarter results, which presented a blend of strengths and weaknesses.
The company reported a total Annual Recurring Revenue (ARR) of $1,465 million, a decline of 4% on a constant currency basis, which fell short of the anticipated $1,478.1 million.
However, Teradata's operating margins and earnings per share (EPS) exceeded expectations, coming in at 22.0% and $0.64 respectively, against the forecasted 16.4% and $0.48.
Teradata's Cloud ARR showed a 31% year-over-year increase on a constant currency basis, reaching $542 million. However, the sequential growth was just $17 million, below the mid-$20 million range that investors had hoped for. Management attributed this to a tough macroeconomic environment and longer deal cycles.
Additionally, Teradata revised its future guidance downwards, including reducing its FY24 public cloud ARR growth from 35-41% to 28-32%, total ARR growth from 4-8% to a decrease of 2-4%, and free cash flow (FCF) from $340-380 million to $270-290 million. The company also postponed its $1 billion cloud ARR target from FY25 to FY26.
The reduced guidance has resulted in a roughly 6% drop in Teradata's shares in after-hours trading. However, Evercore ISI suggests that the lowered expectations could set a more conservative and achievable target for management to work towards.
This comes as Teradata introduces a new go-to-market (GTM) strategy under a new Chief Revenue Officer (CRO) and boasts a pipeline of large ARR deals that is three times larger than in the second quarter of the previous fiscal year.
The revised guidance indicates an expected FY24 net new cloud ARR of approximately $150 million, which Evercore ISI believes is attainable given that management achieved a net new cloud ARR of $171 million in FY23.
The firm concludes that while Teradata's shares, currently trading at 8.5 times its estimated value to CY25 free cash flow, are reaching a valuation that could favor risk/reward balance, the stock might remain rangebound in the near term until management can prove the effectiveness of the GTM changes through growth in net new ARR.
InvestingPro Insights
As Teradata Corporation (NYSE:TDC) navigates through its go-to-market strategy changes and revised guidance, the real-time data and insights from InvestingPro provide a deeper understanding of the company's financial health and market position. With a market capitalization of $2.85 billion and a high Price/Earnings (P/E) ratio of 68.89, Teradata's valuation reflects a market that has priced in significant growth expectations. The company's price/book ratio, at 52.73, suggests a premium valuation compared to its tangible assets.
Despite recent performance concerns, InvestingPro Tips indicate some positive aspects for investors to consider. The management's aggressive share buyback initiative and a high shareholder yield could be seen as signs of confidence in the company's value. Additionally, analysts predict profitability for the year, and the stock is currently trading near its 52-week low, which may present a potential entry point for value investors.
For those seeking further insights, InvestingPro offers additional tips on Teradata, including an analysis of its short-term liquidity challenges and its valuation relative to near-term earnings growth. With 15 total InvestingPro Tips available, investors can access a broader range of data and expert analysis to inform their investment decisions.
InvestingPro's fair value estimate stands at $40.83, slightly below the analyst target of $42, providing a perspective on the company's potential upside. As investors weigh the recent adjustments in guidance against the company's strategic initiatives, these real-time insights and expert tips from InvestingPro could be instrumental in making informed investment choices.
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