Teradata Stock Has More Than 20% Upside

by Trefis Team
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We believe there may be a 20%+ potential upside for Teradata’s stock (NYSE: TDC) after it has climbed 13% off the March bottom. Teradata, a database and analytics products and service provider, saw its stock move from $18 to $21 compared to the S&P which moved 55% in the same period. The primary reason for the move was the Fed’s multi-billion dollar stimulus package announced on March 23rd which lifted market sentiments. The stock saw a further recovery post Q2 2020 results as the revenue and earnings beat market estimates.

The company has seen a fall in revenue over recent years, while its P/S multiple has dropped. We believe the stock is likely to see a 20% upside back to pre-Covid levels once the fear around the pandemic subsides. Our dashboard What Factors Drove -46% Change in Teradata Stock between 2017 and now? has the underlying numbers.

Teradata’s revenues have fallen from $2.2 billion in 2017 to $1.9 billion 2019, which, in turn, led to a -3% fall in revenue per share (RPS) during this period as the number of shares outstanding also went down by 9%. Further, its Net loss improved from $-67 million in 2017 to $-20 million in 2019 primarily due to a lower effective income tax rate.

Teradata’s P/S multiple fell from 2.2x in 2017 to 1.6x in 2019. While the company’s P/S is now 1.2x there is a potential upside when the current P/S is compared to levels seen in the past years. P/S of 1.6x at end of 2019 and 2.1x as recently as late 2018.

Effect of Coronavirus

The global spread of coronavirus has led to lockdown in various cities across the globe, which has affected industrial and economic activity. Due to the stay-at-home orders there is reduced discretionary spending which has adversely affected consumption as consumers focus on essentials. In addition, there have likely been supply disruptions in China and elsewhere from the global Coronavirus crisis. Despite this for the first half of 2020 earnings have improved to $1.14 compared to $-0.09 in the same period of 2019. Revenues have fallen by 6% to $891 million in the first half of 2020.

The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations become important in finding value. Though market sentiment can be fickle, and evidence of an uptick in new cases could spook investors once again.  

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