On Friday, UBS initiated coverage on Teradata Corporation (NYSE:TDC) stock, a cloud data analytics provider, with a Sell rating and a price target of $32.00. The initiation comes as the firm anticipates potential downside risks to the company's future financial guidance.
The UBS analyst pointed to customer migration as a significant concern, noting that the majority of customer checks indicate a shift away from Teradata within the next 6 to 24 months or more.
This customer transition could challenge Teradata's Cloud Annual Recurring Revenue (ARR) goal of $1 billion and Free Cash Flow (FCF) target of $450 million by calendar year 2025. The firm's projections stand slightly below consensus, estimating a Cloud ARR of $935 million and FCF of $405 million.
Despite Teradata's strategic move towards VantageCloud Lake, UBS highlighted an industry trend towards a more open data lake/lakehouse architecture that may disrupt Teradata's traditional data warehouse market. This shift could further impact Teradata's valuation, which is currently around 9 times its projected CY25 FCF.
Teradata's pivot is being closely watched, as the company aims to adapt to evolving market demands. However, the potential architectural shift in the industry poses a risk to Teradata's existing business model and market position. The UBS price target reflects a cautious outlook on the stock's performance pending further clarity on these developments.
In other recent news, Teradata Corp announced the private preview of its AI/ML workload, Teradata AI Unlimited, now integrated with Microsoft (NASDAQ:MSFT) Fabric. This collaboration aims to provide data scientists and developers with frictionless, on-demand access to AI tools and capabilities within the Microsoft ecosystem.
On the financial front, TD Cowen maintained a 'Hold' rating on Teradata stock, but reduced the price target from $46.00 to $40.00 following a 1% contraction in annual recurring revenue (ARR) reported in the company's first-quarter results.
In parallel, BofA Securities downgraded Teradata from 'Neutral' to 'Underperform', citing concerns over the company's near-term execution and ongoing negative estimate revisions.
RBC Capital also reduced its price target for Teradata to $44.00, while maintaining a 'Sector Perform' rating.
Evercore ISI, however, despite lowering its price target for Teradata to $46.00, maintained an 'Outperform' rating on the stock. These are some of the recent developments related to Teradata.
InvestingPro Insights
As Teradata Corporation (NYSE:TDC) navigates the challenges outlined by UBS, real-time data from InvestingPro provides a snapshot of the company's financial health and market performance. With a market capitalization of $3.36 billion and a high P/E ratio of 80.92, Teradata's valuation reflects investor expectations for future earnings growth. However, with a modest revenue growth of 2.65% over the last twelve months as of Q1 2024, the company's growth trajectory is under scrutiny.
InvestingPro Tips highlight that management's aggressive share buyback strategy and the expectation of net income growth this year could be positive signals for investors. Additionally, the company's high shareholder yield and a valuation implying a strong free cash flow yield are aspects that could attract investment, despite the stock taking a significant hit over the last six months with a 28.35% decline. It's noteworthy that analysts predict the company will be profitable this year, a factor that could influence investor sentiment.
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