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TDC is in the S&P 500 S&P Capital IQ Recommendation S&P Capital IQ Equity Analyst D. Holt HOLD Price $26.08 (as of Jun 24, :00 PM ET) 12-Mo. Target Price $31.00 Report Currency USD Investment Style
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TDC is in the S&P 500 S&P Capital IQ Recommendation S&P Capital IQ Equity Analyst D. Holt HOLD Price $26.08 (as of Jun 24, :00 PM ET) 12-Mo. Target Price $31.00 Report Currency USD Investment Style Large-Cap Blend GICS Sector Information Technology Sub-Industry IT Consulting & Other Services Summary This Ohio-based company, spun off from NCR Corp. in 2007, has global operations focused on data warehousing and enterprise analytics. Key Stock Statistics (Source S&P Capital IQ, Vickers, company reports) 52-Wk Range $ S&P Oper. EPS 2016E 2.37 Market Capitalization(B) $3.703 Beta 0.79 Trailing 12-Month EPS $-2.08 S&P Oper. EPS 2017E 2.45 Yield (%) Nil S&P 3-Yr. Proj. EPS CAGR(%) 9 Trailing 12-Month P/E NM P/E on S&P Oper. EPS 2016E 11.0 Dividend Rate/Share Nil S&P Quality Ranking B $10K Invested 5 Yrs Ago $4,541 Common Shares Outstg. (M) Institutional Ownership (%) 89 Price Performance Analyst's Risk Assessment Share Price 30-Week Mov. Avg. 10-Week Mov. Avg. GAAP Earnings vs. Previous Year Volume Above Avg. STARS 12-Mo. Target Price Relative Strength Up Down No Change Below Avg LOW MEDIUM HIGH Teradata participates in a large and growing global market for storing, retrieving and analyzing data produced by businesses. While competition is heavy for technology and pricing, a stream of revenue from services and a clean balance sheet, lend some stability. Revenue/Earnings Data Volume(Mil.) A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S Past performance is not an indication of future performance and should not be relied upon as such. Analysis prepared by Equity Analyst D. Holt on May 06, :19 PM, when the stock traded at $ Highlights Revenues declined 7.4% in 2015, and expect a deeper 9.1% decline in We see continuing challenges related to significant competition and spending uncertainties from key verticals, including financial services. We have noted recent improvements outside the U.S., but have concerns that weak economic conditions in certain parts of Europe will negatively impact further progress. However, we think the recent exiting of the Marketing Applications segment and reduction of R&D expenses should drive a benefit to operating income. After a significant narrowing in operating margin from 2012 through 2015, we expect an increase in 2016 and We see a similar trend for EBITDA margins, falling from 29% to 28% in 2012 and 2013, to around 23% in The company has focused on new growth initiatives and cost synergies, which we positively view. TDC generated EPS of $2.76 for 2013, $2.86 for 2014 and $2.06 for We see $2.37 for 2016 and $2.45 for We note that TDC continues to repurchase stock, and bought back $551 million in shares in 2014 and $647 million in 2015, with annual increases every year since Investment Rationale/Risk We downgraded our opinion on the shares to Hold from Buy, after TDC reported secondquarter results, and following notable stock appreciation. We view rising interest in using transactional data to improve operations as a primary sales driver for TDC. TDC has the potential to perform well based on its holistic approach to offering business intelligence hardware, software and consulting. Still, we see near-term struggles from a lackluster demand environment and market share erosion. Risks to our recommendation and target price include the potential for slowdowns in the pace of business spending on technology, failures to keep up with rapidly evolving alternative platforms and applications, competition on price and quality of products and services and acquisition-execution risks. Our 12-month target price is $31, and is based on our P/E valuation analysis. We apply a multiple of 13.1X our 2016 EPS, which is in line with peers. We see considerable fundamental challenges, but think the valuation is reasonable at current levels. Revenue (Million U.S. $) 1Q 2Q 3Q 4Q Year , , , , ,362 Earnings Per Share (U.S. $) E0.65 E0.77 E0.48 E E Fiscal year ended Dec. 31. Next earnings report expected: Early August. EPS Estimates based on S&P Capital IQ Operating Earnings; historical GAAP earnings are as reported in Company reports. Dividend Data No cash dividends have been paid. Past performance is not an indication of future performance and should not be relied upon as such. Please read the Required Disclosures and Analyst Certification on the last page of this report. This document is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek independent financial advice regarding the suitability and/or appropriateness of making an investment or implementing the investment strategies discussed in this document and should understand that statements regarding future prospects may not be realized. Investors should note that income from such investments, if any, may fluctuate and that the value of such investments may rise or fall. Accordingly, investors may receive back less than they originally invested. Investors should seek advice concerning any impact this investment may have on their personal tax position from their own tax advisor. Please note the publication date of this document. It may contain specific information that is no longer current and should not be used to make an investment decision. Unless otherwise indicated, there is no intention to update this document. Business Summary May 06, 2016 CORPORATE OVERVIEW. oration aims to help its enterprise customers make smarter and faster use of their stored data to improve decision-making. It views itself as a global leader in data warehousing and enterprise analytic technologies. The company offers hardware and software, as well as services including consulting, customer support and training. In 2014, 46% of revenues were derived from products, and 54% from services. Headquartered in Dayton, Ohio, the company has offices throughout the Americas and operates in 60 countries worldwide. It earned 39% of its revenues outside the Americas region in TDC has a broad customer base, in our view. Data warehousing is the process of capturing, storing and analyzing data to gain insight, according to the company. This activity can be a significant source of intelligence for the enterprise and become a competitive advantage. Beyond mere storage of data, modern solutions allow for near real-time information access and analysis. Predictive analytics on customer or business activity may be run. Both long-term strategic and short-term tactical inquiries may be pursued. Corporate Information Investor Contact G. Swearingen ( ) Office Innovation Drive, Dayton, OH Telephone Fax Website In one example of active data warehousing, a business's call center could produce raw data on call attributes (e.g., number of calls, duration, agent, customer, dropped calls, results), which could be a starting point for mapping and analyzing overall interactions with customers, including Internet communications, which could then become the basis for a plan to improve customer satisfaction. The company serves many large clients in the communications industry, as well as in media and entertainment, financial services, government, health care, manufacturing, retail, and transportation. CORPORATE STRATEGY. Teradata operated as the Data Warehousing segment of NCR Corp. until a spinoff was completed at the end of September Thus, it combines extensive experience with recent independence as a publicly traded company. As a stand-alone company, TDC may find it easier to expand at its own pace, with greater freedom to raise funds via debt or share issuance, or to acquire or divest assets, in our view. By offering the machines, software and consulting know-how, TDC aims to offer enterprise clients a complete solution for their data warehousing and related business intelligence needs. The company seeks to enhance customers' overall benefits by hosting an annual user conference and through efforts such as a strategic partnership with privately held industry peer SAS that allows TDC users to work with elements of both companies' solutions. In the second half of 2014, the company bought five smaller technology companies, focused on data and/or analytics, to enhance its offerings and capabilities related to Big Data. COMPETITIVE LANDSCAPE. While many firms offer parts of a data warehousing solution, few offer complete solutions, which aids TDC's value proposition, in our view. However, the competition in complete solutions includes information technology heavyweights SAP, Oracle and IBM, which have recently boosted their operations with business intelligence software acquisitions. Thus, TDC faces some competitors with greater resources for R&D and marketing. FINANCIAL TRENDS. In general, we believe growth will be aided by more businesses and government agencies adopting data warehousing programs, and by existing users persistently upgrading their programs to exploit data analytics equipment and techniques that are gaining sophistication over time. We also expect revenue growth to benefit from gradual improvement in economic conditions. Gross margins overall have typically been near 54% to 55% since 2005, but changes in sales mix and differing contributions by geographic markets can create some variation in gross margins. TDC repurchased stock valued at $88 million in 2010, $127 million in 2011, $277 million in 2012, $382 million in 2013, $551 million in 2014 and $647 million in Officers Chrmn J.M. Ringler CEO & Pres V.L. Lund COO R.E. Fair, Jr. Board Members L. R. Bacus C. T. Fu D. E. Kepler, II J. M. Ringler W. S. Stavropoulos Domicile Delaware Founded 1979 Employees 11,300 Stockholders 68,500 EVP & CFO S.M. Scheppmann CTO S.A. Brobst N. E. Cooper M. P. Gianoni V. L. Lund J. G. Schwarz Quantitative Evaluations Expanded Ratio Analysis S&P Capital IQ Fair Value Rank Fair Value Calculation LOWEST HIGHEST Based on S&P Capital IQ's proprietary quantitative model, stocks are ranked from most overvalued (1) to most undervalued (5). $30.50 Analysis of the stock's current worth, based on S&P Capital IQ's proprietary quantitative model suggests that TDC is slightly undervalued by $4.42 or 16.9% Price/Sales Price/EBITDA Price/Pretax Income NM P/E Ratio NM Avg. Diluted Shares Outstg (M) Figures based on calendar year-end price Investability Quotient Percentile LOWEST = 1 HIGHEST = 100 TDC scored higher than 88% of all companies for which an S&P Capital IQ Report is available. Volatility LOW AVERAGE HIGH Technical Evaluation BULLISH Since May, 2016, the technical indicators for TDC have been BULLISH. 88 Key Growth Rates and Averages Past Growth Rate (%) 1 Year 3 Years 5 Years 9 Years Sales Net Income NM NM Ratio Analysis (Annual Avg.) Net Margin (%) NM % LT Debt to Capitalization Return on Equity (%) NM Insider Activity UNFAVORABLE NEUTRAL FAVORABLE For further clarification on the terms used in this report, please visit Company Financials Fiscal Year Ended Dec. 31 Per Share Data (U.S. $) Tangible Book Value Cash Flow Earnings S&P Capital IQ Core Earnings NA NA NA NA Dividends Nil Nil Nil Nil Nil Nil Nil Nil Nil NA Payout Ratio Nil Nil Nil Nil Nil Nil Nil Nil Nil NA Prices:High NA Prices:Low NA P/E Ratio:High NM NA P/E Ratio:Low NM NA Income Statement Analysis (Million U.S. $) Revenue 2,530 2,732 2,692 2,665 2,362 1,936 1,709 1,762 1,702 1,560 Operating Income Depreciation Interest Expense NA NA Nil Nil Nil Pretax Income Effective Tax Rate NM 25.7% 25.8% 27.5% 26.6% 27.3% 24.0% 26.0% 37.9% 36.5% Net Income S&P Capital IQ Core Earnings NA NA NA NA Balance Sheet & Other Financial Data (Million U.S. $) Cash Current Assets 1,734 1,572 1,563 1,534 1,412 1,406 1,152 1, Total Assets 2,530 3,132 3,096 3,066 2,616 1,883 1,569 1,445 1, Current Liabilities Long Term Debt Nil NA Nil Nil Nil Common Equity 849 1,707 1,857 1,779 1,494 1, Total Capital 1,449 1,955 2,131 2,053 1,784 1, Capital Expenditures Cash Flow Current Ratio % Long Term Debt of Capitalization Nil Nil Nil Nil Nil % Net Income of Revenue NM % Return on Assets NM NA NM % Return on Equity NM NA NM Data as originally reported in Company reports.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Stock Report June 25, 2016 NYS Symbol: TDC Sub-Industry Outlook Our fundamental outlook for the IT Consulting & Other Services sub-industry is neutral. Demand for consulting and infrastructure-based services, for example, has been improving over the last few years. However, more recently, a level of caution has been seen among clients given a hazy outlook for the global economy, particularly in Europe. We see signs of related improvements. We also think business consulting will remain healthy, as companies look for help in managing amid uncertainty, and note digital opportunities and challenges. According to a survey by IDC, a global industry provider of IT data, spending on IT and business services worldwide was expected to increase at a compound annual growth rate of 4.7% between 2012 and IDC saw pockets of strength, including business process outsourcing and hosting infrastructure services. IDC looks for IT consulting services spending to increase 4.1% and business consulting to rise 7.6% annually between 2012 and We see modest near-term growth prospects, due in part to significant competition, and believe some IT service companies will look to supplement growth via acquisitions and partnerships. We point to the acquisitions of Perot Systems by Dell, Affiliated Computer Services by Xerox, and planned merger of Computer Sciences Corp with the Enterprise Segment of Hewlett Packard Enterprise. Another strategy we think is gaining momentum involves focusing on smaller and shorter duration IT service contracts, which often involve reduced upfront costs and provide a faster return on investment. In the government marketplace, we view increased spending on IT-related defense and homeland security initiatives as positive factors, as well as interest in IT-related projects within the health care sector. Ongoing budget concerns remain a headwind, however, near term backlog trends suggest some alleviation of pressure. We also note company separations (Computer Sciences Corp and CSRA Inc.), in efforts to unlock shareholder value. Longer term, we think computer services concerns will continue to benefit from the effects of an increasingly global economy, deregulation, an IT labor shortage, and e-business opportunities. Also, corporations and governments will likely continue to need services and systems that can help boost productivity and cut costs. We think cost-cutting initiatives will be a source of strength for the India-based outsourcing companies in the group. The S&P 1500 IT Consulting & Other Services Index grew 9.8% in 2016, through June 10, compared with a increase of 3% for the S&P In 2015, the sub-industry index fell 2.9%, while the S&P 1500 decreased 1%. --David Holt Industry Performance GICS Sector: Information Technology Sub-Industry: IT Consulting & Other Services Based on S&P 1500 Indexes Five-Year market price performance through Jun 25, 2016 % Change 90% 70% 50% 30% 10% -10% -30% -50% -70% -90% S&P 1500 Sector Sub-Industry NOTE: All Sector & Sub-Industry information is based on the Global Industry Classification Standard (GICS) Past performance is not an indication of future performance and should not be relied upon as such. Sub-Industry : IT Consulting & Other Services Peer Group*: Based on market capitalizations within GICS Sub-Industry Peer Group Stock Symbol Stk.Mkt. Cap. (Mil. $) Recent Stock Price($) 52 Week High/Low($) Beta Yield (%) P/E Ratio Fair Value Calc.($) S&P Quality IQ Ranking %ile Return on Revenue (%) TDC 3, / Nil NM B 88 NM 39.3 Booz Allen Hamilton Hldg BAH 4, / NR CSRA Inc CSRA 3, /20.98 NA NA NR Computer Sciences CSC 6, / B Datalink Corp DTLK / Nil B NA EPAM Systems EPAM 2, / Nil NR Formula Systems(1985)ADR FORTY / NA NR InterXion Holding INXN 2, / Nil 42 NA NR Luxoft Holdings'A' LXFT 1, /46.85 NA Nil NR NA PFSweb Inc PFSW / Nil NM 7.80 C 16 NM 39.5 Perficient Inc PRFT / Nil 29 NA B Science Applications Intl SAIC 2, /39.28 NA NR ServiceSource Intl SREV / Nil NM NA NR 6 NM 46.1 UBIC Inc ADS UBIC /10.03 NA Nil NM NA NR 31 NA 40.9 Virtusa Corp VRTU / Nil NR NA-Not Available NM-Not Meaningful NR-Not Rated. *For Peer Groups with more than 15 companies or stocks, selection of issues is based on market capitalization. LTD to Cap (%) Stock Report June 25, 2016 NYS Symbol: TDC S&P Capital IQ Analyst Research Notes and other Company News May 12, 2016 On May 5, 2016, oration (the #company#) received notice from Saundra Davis, one of the company's named executive officers, that she intends to resign from employment with the company effective May 27, Ms. Davis has served the company in the role of Chief Human Resource Officer since May 6, :34 pm ET... S&P GLOBAL REITERATES HOLD OPINION ON SHARES OF TERADATA CORP. (TDC 28.56***): We keep our 12-month target of $31, on 13.1X our '16 EPS estimates, in line with peers. We raise our '16 EPS estimates to $2.37 from $2.33 and '17's EPS to $2.45 from $2.26. TDC posts Q1 EPS of $0.47, vs $0.30, higher than Capital IQ consensus of $0.37. Revenue was down 6%, as America Data declines (12%), offset a 4% gain in International Data. We note the recent selection of Victor Lund as the new CEO and divestiture of its Marketing Applications business for $90M. We remain encouraged with restructuring efforts, as we think it positions TDC well in an evolving data market. /D. Holt May 6, :34 pm ET... S&P GLOBAL REITERATES HOLD OPINION ON SHARES OF TERADATA CORP. (TDC 28.56***): We keep our 12-month target of $31, on 13.1X our '16 EPS estimates, in line with peers. We raise our '16 EPS estimates to $2.37 from $2.33 and '17's EPS to $2.45 from $2.26. TDC posts Q1 EPS of $0.47, vs $0.30, higher than Capital IQ consensus of $0.37. Revenue was down 6%, as America Data declines (12%), offset a 4% gain in International Data. We note the recent selection of Victor Lund as the new CEO and divestiture of its Marketing Applications business for $90M. We remain encouraged with restructuring efforts, as we think it positions TDC well in an evolving data market. /D. Holt May 6, :55 am ET... S&P GLOBAL REITERATES HOLD OPINION ON SHARES OF TERADATA CORP. (TDC 28.56***): We keep our 12-month target of $31, on 13.1X our '16 EPS estimates, in line with peers. We raise our '16 EPS estimates to $2.37 from $2.33 and '17's EPS to $2.45 from $2.26. TDC posts Q1 EPS of $0.47, vs $0.30, higher than Capital IQ consensus of $0.37. Revenue was down 6%, as America Data declines (12%), offset a 4% gain in International Data. We note the recent selection of Victor Lund as the new CEO and divestiture of its Marketing Applications business for $90M. We remain encouraged with restructuring efforts, as we think it positions TDC well in an evolving data market. /D. Holt We cut our '15 EPS estimates to $2.09 from $2.44 and '16's to $2.32 from $2.67. TDC posts Q3 EPS of $0.55 vs $0.71, in line with S&P Capital IQ consensus. Sales were down 9% driven by weak results across all operating segments. While we positively view the new growth initiatives implemented by TDC, we see material revenue improvement being longer term. Exiting of the Marketing Applications segment and right sizing of R&D expenses should drive synergies. /D. Holt August 6, :34 pm ET... S&P CAPITAL IQ REITERATES HOLD OPINION ON SHARES OF TERADATA CORP. (TDC 30.69***): We lower our 12-month target to $33 from $44. Peers have a forward P/E of 16X and a P/E-to-growth (PEG) ratio of 1.4. Using these multiples and averaging the output result in our target. We lower our EPS estimates for '15 to $2.44 from $2.56 and '16 to $2.67 from $2.84. TDC p
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