Teradata Corporation (TDC) provides analytic data products and related services. The company operates in data and analytics, which captures, integrates, stores, manages, and analyzes data of all types to answer business questions and deliver insight.
Its marketing applications offer marketing management products to help businesses win customer loyalty. TDC's solutions include components such as data warehousing, big data, discovery tools, integration tools, and business intelligence tools to manage and integrate the complex data ecosystem.
Essentially, its analytics platform allows customers to integrate and simplify their analytics ecosystem. The company's target market is companies that are large-scale users of data. These firms are seeing a huge increase in data-driven by the pandemic-driven move to digital, as well as an increase in the complexity, cost, and risk associated with managing large sets of data across diverse environments.
TDC's transition to a subscription-based business model has been boosting recurring revenues. The firm's second-quarter performance benefited from this momentum as its revenues and earnings rose year over year.
Recurring revenues, which make up 76.6% of revenues, increased 16% year over year to $376 million. Its non-GAAP earnings of 74 cents per share beat analyst forecasts and significantly increased from 24 cents in the same quarter last year. It also comfortably beat out the company's own guidance of 47-49 cents per share.
The recurring business model is expected to be a long-term growth driver for the company. TDC is also benefiting from the expansion of cloud-based features in its Vantage platform. This solution is available at top public cloud vendors such Google Cloud, AWS, and Azure. In fact, its portfolio of solutions should help drive its market share in the highly lucrative big data market.
The company continues to add features to the cloud and on-premise platform to address customer needs for high-performance and hybrid analytics. TDC generates significant revenue in areas such as financial services, government, and healthcare, which have, for the most part, remained stable during the pandemic.
TDC is also expected to gain long-term growth from strategic partnerships with top companies, including Accenture (ACN), Cognizant (CTSH), Deloitte, IBM (IBM), and many more. Strengthening its relationships with these vendors should help drive revenues and earnings in the upcoming years.
The company has an overall grade of A, translating into a Strong Buy rating in our POWR Ratings system. TDC has a Value Grade of A, which makes sense when you look at its valuation metrics. For instance, its price-to-free cash flow ratio of 13.8 is well below the industry average.
The stock is also undervalued by as much as 66.9% based on analyst estimates. The company also has a Quality Grade of B due to solid fundamentals. As of the most recent quarter, the company had $684 million in cash compared with only $62 million in short-term debt. TDC is also quite efficient, with a return on equity of 21.4%.
We also provide Growth, Momentum, Stability, and Sentiment grades for the company, which you can find here. TDC is ranked #1 in the Technology – Storage industry.
NetApp, Inc. (NTAP) is another company in this industry. While the stock has an overall grade of B and a Buy rating in the POWR Ratings system, most of its component grades are a C. For instance, the company has a Value Grade of C. Its price to free cash flow of 18 is much higher than TDC's 13.8.
Its sky-high price-to-book ratio is also well above TDC's 12.2. In addition to a lower overall grade and rank in the same industry, the stock's valuation underwhelms compared to TDC. Pure Storage, Inc. (PSTG) is another company in this industry. The stock has an overall grade of C, which translates into a Neutral rating in our POWR Ratings system.
The company has a Value Grade of D, and multiple component grades of C. Its forward P/E is 77.52, making this a highly unattractive stock in this industry. Its price-to-free cash flow of 50.8 is also quite high. Plus, its Stability Grade of C is quite concerning. So, once again, TDC is the better play.
TDC is just one of the stocks in my POWR Value portfolio. That's where I combine my many years of investing experience with the Top 10 Value Stocks strategy, which has +38.63% annual returns, to bring investors the best value stocks for today's market.
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TDC shares rose $0.28 (+0.55%) in after-hours trading Friday. Year-to-date, TDC has gained 127.46%, versus a 19.92% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. He is the Chief Value Strategist for StockNews.com and the editor of POWR Value newsletter. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers.
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