On Tuesday, TD Cowen maintained a Hold rating on Teradata (NYSE:TDC) shares, while reducing the price target from $46.00 to $40.00. The adjustment follows Teradata's first-quarter results, which revealed a 1% contraction in annual recurring revenue (ARR) on a constant currency (cc) basis, falling short of the 0% estimate. The cloud segment of the business grew by 36% cc, which was also below the anticipated 40%.
The company's on-premise business erosion matched expectations, with no shifts observed in customer churn dynamics. Management has now adjusted its full-year 2024 revenue and ARR guidance to the lower end, though it remains confident about achieving the midpoint of its Cloud ARR targets. Despite this, the analyst suggests that the company faces a challenging path ahead, particularly in the second half of the year, to meet these goals.
The report provided by TD Cowen indicates that Teradata's performance in the cloud sector, although showing growth, did not meet the analyst firm's projections. This underperformance, combined with the steady rate of on-premise decline, has influenced the firm's decision to lower the price target for the data analytics company's stock.
Teradata's management appears to be recalibrating its expectations for the fiscal year 2024, signaling caution as it aims for the lower spectrum of its revenue and ARR guidance. However, there is an expressed confidence in reaching the central figures of the cloud ARR forecast, suggesting a potential area of strength for the company.
The revised price target of $40 reflects the analyst's view that Teradata has significant work to do in the latter half of the year to align with its financial targets. The hold rating indicates that, while there may be potential for the stock, there are also considerable challenges that could impact its performance.
InvestingPro Insights
As Teradata (NYSE:TDC) navigates through its financial recalibration for FY 2024, insights from InvestingPro could offer investors a clearer picture of the company's current standing. With a market capitalization of $3.2 billion and a high Price/Book ratio of 27.47 as of the last twelve months ending Q4 2023, the company's valuation reflects a premium on its book value, which could be a point of consideration for value-focused investors. Meanwhile, the P/E ratio stands at a lofty 91.71, though the adjusted P/E ratio shows a more moderate figure at 59.18, suggesting some potential for those banking on near-term earnings growth.
An important highlight from the InvestingPro Tips is the company's aggressive share buyback strategy, which could signal management's confidence in the company's future and contribute to shareholder value. Additionally, the expectation of net income growth this year aligns with management's confidence in achieving its Cloud ARR targets, despite the recent underperformance in the cloud sector growth.
Investors seeking further insights can explore additional InvestingPro Tips that delve deeper into Teradata's financial health, including its debt levels, earnings multiples, and profitability forecasts. With 11 more tips available on InvestingPro, subscribers can gain a comprehensive understanding of the company's prospects. To enhance your investment research, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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