The cloud-storage market is becoming more competitive.
Vladimir Timofeev/Dreamstime
Wall Street jargon includes the idea of “rerating”—a term equity analysts use when investors rethink how to value a stock whose price isn’t consistent with new information. That is is exactly what is going on with Teradata, a formerly sleepy 42-year-old data-warehouse software company.
Teradata (ticker: TDC) hasn’t been growing much in recent quarters, as a host of new competitors enter the market with cloud-based versions of data warehousing. Snowflake (SNOW) is in that market, and there are competitive products from all three of the leading public cloud vendors: services like Amazon.com’s (AMZN) Redshift, Microsoft’s (MSFT) Azure Synapse, and Alphabet’s (GOOGL) BigQuery. But in an earnings report issued late last week, Teradata surprised the Street with disclosures on the progress it is making with a cloud version of its software.
The result is that Teradata is rerating higher.
Teradata posted fourth-quarter revenue of $495 million, down 1% from a year earlier but above the Street consensus forecast of $475 million. The surprise was that annual recurring revenue, or ARR, from public-cloud-based services was $106 million, up 165% from a year earlier. Teradata also said it expects public-cloud ARR to increase at least 165% on a year-over-year basis in the first quarter, and at least 100% for the year.
That spurred BofA Global Research analyst Wamsi Mohan on Friday to lift his rating on Teradata shares to Buy from Neutral, with a new target of $55, up from $26. Among other factors, he noted that the stock appeared extremely cheap at less than 10 times free cash flow, and just 1.5 times forward sales. It’s a little pricier now, but it still looks like a bargain-basement find compared to Snowflake at 73 times forward sales.
On Monday, JMP Securities analyst Pat Walravens raised his rating on the stock Market Outpeform from Market Perform, with a new target of $70. “The key point is that, with its Vantage platform, Teradata is now well positioned to participate in the hyper-growth cloud segment of the $55 billion-plus database management software market and, while there are a number of excellent competitors in the space like Snowflake, we see several reasons why Teradata should continue to do well,” he wrote.
For one thing, he said, the market is big enough and fast-growing enough to support multiple winners. And he said that Teradata can differentiate itself by supporting both cloud-based and on-premise-deployments. “Teradata has an impressive set of existing customers to whom it can market Vantage,” he wrote.
“And as we have seen with the 10x increase in MongoDB’s (MDB) stock price over the last three years, the increasing traction of a cloud offering from a previously on-premise database company can yield ancillary advantages to the business that can drive growth over a multi-year period, including improved sales and marketing efficiencies.”
Walravens contends the stock is undervalued, and that even if it traded at a 40% discount to its peers, it could reach $100.
Teradata shares, which gained 37% on Friday, rose another 30%, to $48.05, on Monday. That is a two-day rerating rally of 78%.
Write to Eric J. Savitz at [email protected]
