On Tuesday, Evercore ISI revised its price target for Teradata Corporation (NYSE:TDC), a cloud-based data analytics company, lowering it to $46.00 from the previous $58.00. Despite the reduction, the firm maintained its Outperform rating on the stock.
Teradata reported a mixed first-quarter performance, with total revenue at $465 million, a 1% year-over-year decrease when adjusted for constant currency. This figure slightly exceeded the analyst and Street expectations of $446.4 million and $461.9 million, respectively. The company's total Annual Recurring Revenue (ARR) also saw a 1% year-over-year dip in constant currency, falling short of expectations at $1,480 million compared to the anticipated $1,498 million and $1,520 million.
Earnings per share (EPS) for the first quarter were a bright spot, coming in at $0.57, which was ahead of both the analyst and Street estimates of $0.55. However, cloud ARR, which stood at $525 million, up 36% year-over-year in constant currency, saw a $3 million sequential decrease. This drop was partially attributed to a $5 million foreign exchange headwind. Despite the shortfall, the company's management has guided for approximately $200 million of net new cloud ARR for fiscal year 2024, with expectations that 50% of this will be realized in the fourth quarter.
Teradata has recently overhauled its deal tracking processes and added over 100 new logos to its pipeline, which, along with strong visibility into its existing on-premises customer base transitioning to VantageCloud, suggests minimal impact from the first-quarter cloud ARR shortfall. The company has also retained its full-year guidance, indicating confidence in meeting its targets.
The analyst firm believes that the current execution risks are already reflected in Teradata's valuation, with shares trading at 8 times enterprise value to calendar year 2025 free cash flow and 15 times calendar year 2025 EPS. It is anticipated that the stock will remain range-bound until the company can demonstrate a significant sequential increase in net new cloud ARR, which would signal the durability and strength of its pipeline.
A net new cloud ARR in the region of $30 million in the second quarter is seen as a potential catalyst for alleviating investor concerns and establishing a foundation for a strong second half of the year. The new price target of $46 is based on 10.5 times enterprise value to calendar year 2025 free cash flow and 20 times calendar year 2025 EPS.
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