On Tuesday, Barclays (LON:BARC) adjusted its outlook on Teradata (NYSE:TDC), a cloud-based data analytics company. The firm's analyst has reduced the price target on Teradata shares to $29 from the previous $30, while maintaining an Underweight rating.
This decision comes on the heels of Teradata's third-quarter results, which, although satisfactory in surpassing conservative forecasts set after a significant guidance revision for fiscal year 2024, have prompted concerns about the company's long-term investment viability.
The analyst noted that Teradata's updated Public Cloud Annual Recurring Revenue (ARR) growth forecast for fiscal year 2024 is now 18-22%, a decrease from the 28-32% projected last quarter and significantly lower than the 35-41% anticipated two quarters ago. This revision suggests that customers are adopting cloud services in a more gradual, staged process than previously thought.
While the company reiterated its total ARR guidance for fiscal year 2024, indicating stable customer commitments overall, the significant downward revision in growth estimates over the past six months has raised questions about Teradata's visibility into its cloud migration trajectory.
Teradata's cloud migration is considered a critical component of its long-term strategy. The reduced growth expectations for its Public Cloud ARR have led Barclays to anticipate a potential negative impact on Teradata's stock performance. The price target has been adjusted to $29, reflecting an unchanged valuation multiple and revised free cash flow (FCF) estimates.
The analyst's remarks highlight the importance of cloud migration for Teradata's future, and the recent results have not bolstered confidence in this area. Despite the overall stability in customer commitments, the lowered growth projections for the Public Cloud ARR are seen as a sign of limited visibility into the company's growth prospects, which could influence investor sentiment.
In other recent news, Teradata Corporation (NYSE:TDC) reported Q3 earnings that exceeded analyst expectations, with adjusted earnings per share (EPS) of $0.69, outperforming the forecasted $0.56. The company's revenue for the quarter was $440 million, surpassing the estimated $417.71 million.
However, the company's Q4 outlook, projecting an adjusted EPS between $0.40 and $0.44, has been perceived as weaker than anticipated, falling below the analyst consensus of $0.48.
Teradata's public cloud annual recurring revenue (ARR) witnessed a 26% YoY growth to $570 million, while the total ARR saw a 3% decrease to $1.482 billion. The company also reported robust cash flow performance, with cash flow from operations up 88% YoY to $77 million and free cash flow increasing 92% YoY to $69 million.
For the full year 2024, Teradata raised its adjusted EPS guidance to a range of $2.30 to $2.34, surpassing the analyst consensus of $2.25. However, the company maintained its expectations for total ARR to be in the range of -2% to -4% YoY in constant currency for the full year 2024.
These are the recent developments for Teradata Corporation.
InvestingPro Insights
Recent InvestingPro data provides additional context to Teradata's current financial position and market performance. Despite Barclays' cautious stance, Teradata's market cap stands at $3.21 billion, with a P/E ratio of 52.63, indicating that investors are still pricing in growth expectations. The company's revenue for the last twelve months as of Q2 2024 was $1.796 billion, with a gross profit margin of 60.63%, suggesting a strong core business despite the challenges in cloud migration.
InvestingPro Tips highlight both strengths and potential concerns for Teradata. On the positive side, management has been aggressively buying back shares, which could signal confidence in the company's long-term prospects. Additionally, Teradata is expected to remain profitable this year, aligning with the analyst's observation of stable customer commitments. However, the stock is trading at a high P/E ratio relative to near-term earnings growth, which may support Barclays' cautious outlook.
For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for Teradata, providing a broader perspective on the company's financial health and market position.
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