Valuation Scorecard: Stock Rating D-Negative (3/20/24)-Teradata Corporation (TDC).

Teradata’s common shares will need to reach $65 to achieve average annual stock market performance of 9.0% over the next 6 years. Upper quartile performance will require a $76 Teradata stock price by 2029. As reflected at the current price of $39, what future Teradata operating performance is the market anticipating?

Executive Summary

• Teradata’s important characteristics: very high profitability, high financial strength, instability, and below average expected growth.
• Very high valuation, lagging shareholder returns. Current valuation levels are very high relative to the Teradata Peer Group. Recent market returns have substantially underperformed the Teradata Peer Group. Total shareholder returns expected to significantly lag the overall equity market. Based on current investor expectations, Teradata shares should reach a level of $20 by 2029 — an -10.6% per year total shareholder return. A 2029 stock price of $65 would reflect median performance and a price of $76 would be required to reach upper quartile performance.
• Teradata’s past growth is slightly below average. Historical growth has been below average relative to the Teradata Peer Group and forecasted growth is relatively below average. Revenue Growth, Asset Growth, Equity Growth, and EPS Growth have all lagged. These factors have negatively affected market perceptions of Teradata. Teradata’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth resulting in an improving return on equity. Teradata’s consensus growth expectations are lower than historical growth.
• Return on Equity is group leading. This factor has strengthened market perceptions of Teradata. The company has very high excess cash and will have to work to reinvest at attractive returns to support profitability and valuation.
• Teradata’s risk profile is favorable. Overall variability has been very low with very low revenue variability, above average E.P.S. variability, and only average stock price volatility. Financial Strength is relatively very high and earnings’ expectations are very low. The debt/capital ratio has risen very significantly.

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