Conservative FCF guide stalls the stock momentum; BUY on weakness
Following a better than expected 4Q and somewhat mixed 1Q outlook, we reiterate our BUY rating on the stock and maintain our $50PT. Teradata reported a decent quarter beating consensus revenue and EPS and providing outlook that is largely inline on the revenue at the midpoint while EPS was slightly ahead at the midpoint (by $0.10). However, the company guided FCF below consensus, spooking investors. Following our conversation with the company, we come to believe the new CFO is somewhat conservative in his guidance, which is appropriate in our view, given many moving parts within the business. For us, the story is intact and for a company that is in the midst of a major reworking of its go-to market model, some bumps are to be expected. The business momentum is intact and we believe the move to subscription model is likely to accelerate as we progress through the year. Acceleration to subscription model is likely to depress FCF in the near-term, but investors need to shrug it off and stay the course. We expect the company to beat estimates and raise them as we progress through the year. Therefore, we recommend investors use the weakness to BUY shares of Teradata and in our opinion patient investors will be rewarded handsomely.Teradata is a hybrid cloud analytics software provider. The company's solution, Teradata Vantage?, is its data warehouse and analytics platform that allows companies to utilize their data across an enterprise, whether on premises, in public or private clouds, or in a hybrid environment. The company's solutions are comprised of software, hardware, and related business consulting and support services. The company's business consulting services include a range of offerings, including consulting to help organizations establish an analytic vision, identify and operationalize analytical opportunities, enable an analytical ecosystem architecture, and ensure their analytical infrastructure delivers value.
Summit Insights Group LLC (SIG), founded by Srini Nandury in 2018, is a fundamentals-driven, technology-focused, equity research boutique. SIG analysts cover Semiconductors, Semicap Equipment, Enterprise & Application Software, and IT Hardware & Storage companies. The firm also provides insight into adjacent areas such as Mobile and Internet Technologies.
SIG provides deep, rigorous technology and financial analysis, unlike Wall Street analysis that is mainly driven by financial models. SIG principal analysts are known for their extensive industry experience, which we believe is essential to evaluate technology industry stocks. Each principal analyst has at least 5 years of hands-on industry experience prior to their tenure in equity analysis. SIG analysts are known for making non-consensus prescient stock calls.
SIG analysts follow more than 100 stocks regularly in the areas of Enterprise and Application Software, Storage, Networking, Security, Flash Memory, Big Data, Storage Networking, SSD and Processors. SIG analysts have access to the managements of both public and private companies to verify factual items from public comments or published statements, buttressing the integrity of our analysis. SIG analysts regularly attend industry conferences and visit startup companies to understand technology trends driving the industry. SIG is not a broker dealer, hence it does not have investment banking or trading conflicts. At SIG, we value integrity, our client interests and confidentiality above all else.
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