Teradata Soars on Hopes for Its Cloud Business. Analysts Aren’t Fully Convinced.


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Teradata pre-announced another blowout quarter.


Makym Klimov/Dreamstime.com


Teradata

did it again. For the second quarter in a row, the stock has had an unworldly spike as the company reveals progress in its push to shift more of its business to the cloud. 

In February, shares of the 42-year-old data-warehouse software company soared 99% in three trading days after posting better-than-expected financial results for the December quarter, hitting a closing peak of $53.76 on Feb. 9 before a recent retreat to the high $30s.

This time, Teradata (ticker: TDC) didn’t wait for its regularly scheduled earnings date of May 6—the company pre-announced another blowout quarter. Thursday morning, the stock was up about 32%, to $52.60.

The company now expects to report March quarter revenue comparable to the $495 million reported in the 2020 fourth quarter, well ahead of the Street consensus at $449 million. The company said it saw strength “across all its revenue categories.” Some more cautious analysts see that statement as a hint that the big beat might be at least in part from the legacy data-center business, and not entirely from the nascent cloud segment.

Teradata sees GAAP earnings for the quarter between 45 cents and 47 cents a share, ahead of its previous guidance range of 11 cents to 13 cents. The company now projects adjusted earnings of 67 cents to 69 cents a share, revised from a previous forecast of 38 cents to 40 cents. Teradata said public-cloud annual recurring revenue growth should be up between $16 million and $18 million, ahead of its previous forecast of $10 million to $15 million.

The announcement stunned the company’s analysts, most of whom have been lukewarm on the stock—or worse; of 22 who formally cover the stock, 20 rate it Hold or Sell. 

Citi’s Tyler Radke has been one of the lonely bulls. On Thursday, he repeated his Buy rating and $49 target price, which is a little below the current price. While he cautioned that some of the outperformance likely was driven by strength in perpetual licenses and consulting revenue—not the part of the business that investors are especially interested in—he said it is “difficult to see a scenario in which recurring revenue growth didn’t re-accelerate in Q1.”

Radke also said even with the 30% move, the stock still carries a relatively modest valuation of recurring revenue. “We believe the multiple could be subject to further re-rating if cloud strength continues to surprise to the upside throughout 2021,” he wrote.

Stifel’s Brad Reback repeated his Hold rating and jumped his target price to $45, from $25. “The current results are a clear indication the company continues to benefit from a better spending environment for on-prem software applications (we highlight recent solid results from SAP and

IBM

) as well as cloud-first development and marketing efforts that are driving emerging interest in its public cloud product set,” he wrote in a research note. But Reback added that “given the nascent, albeit accelerating, business model transition toward the public cloud, we believe the stock should trade at a discount to peers.”

Needham’s
Jack Andrews
has a Hold rating and maintained his cautious stance. “Although we are incrementally encouraged by Teradata’s results and the cloud-first vision outlined by its new management team, we look for greater evidence of sustainability regarding cloud traction and an inflection in the financials to become more positive,” he wrote.

UBS analyst Jennifer Swanson Lowe is sticking with her Sell rating and $30 price target. “The beat is impressive, but we think that the revenue and EPS upside was likely largely due to on-prem wins, potentially a catchup on deals delayed by the pandemic, while our field work continues to suggest that public cloud is a net headwind to Teradata long term as the company captures some cloud business but has more to lose in the on-prem installed base,” she wrote. “We remain cautious about the company’s longer-term growth potential.”

Write to Eric J. Savitz at eric.savitz@barrons.com