Morgan Stanley Downgrades Teradata Corporation and Slashes Price Target Amidst Slower Growth Trajectory
Teradata Corporation has been downgraded from Overweight to Equal-weight by Morgan Stanley. The renowned financial firm also slashed the price target for Teradata’s stock from $74 to $48, citing the company’s recent financial performance and outlook. This adjustment comes as an alarming response to the challenges faced by Teradata, including extended timelines for Cloud deals and a decline in on-premise business, which may hinder revenue growth and limit the stock’s potential.
Although Teradata managed to slightly exceed Morgan Stanley’s expectations in Q4 earnings, its Cloud Annual Recurring Revenue (ARR) only grew by 46% year-over-year, falling short of the guidance range of 53-57%. This disappointing outcome was attributed to the postponement of several deals into 2024. Furthermore, the expected erosion of on-premise business is likely to create headwinds for ARR and recurring revenue next year.
Morgan Stanley has expressed concern regarding Teradata’s 2024 Cloud ARR guidance, suggesting that the company’s management may have set an overly ambitious target of $1 billion in ARR by 2025. As a result of the anticipated slower growth, the financial firm has significantly reduced its price target for Teradata’s stock by 35% to $48. This revision reflects a revised valuation multiple for Teradata’s Cloud ARR business.
In spite of these challenges, Teradata Corporation has been actively repurchasing shares, which indicates their confidence in the company’s future performance. Although the company does not currently pay dividends, these share repurchases contribute to its shareholder yield. Notably, Teradata currently boasts a market capitalization of $3.69 billion.
As of Q4 2023, Teradata Corporation is trading at a high earnings multiple, with a price-to-earnings (P/E) ratio of 60.84 and an adjusted P/E ratio of 76.96. Meanwhile, the company’s revenue for the last twelve months stands at $1.833 billion, exhibiting a modest growth rate of 2.12%. These figures may reflect some of the challenges identified by Morgan Stanley.
With Morgan Stanley’s downgrading and price target reduction, Teradata Corporation faces a critical juncture as it navigates its growth trajectory. The company will need to address the challenges in its Cloud deals and on-premise business to regain investor confidence and drive future success.
Analyst comment
Negative news.
As an analyst, the downgrading and price target reduction by Morgan Stanley suggests that Teradata Corporation may face difficulties in its growth trajectory due to challenges in its Cloud deals and on-premise business. The company needs to address these challenges to regain investor confidence and drive future success.
