TDC: Free Cash Flow Focus Will Drive Re-Rating Despite Legal Overhang

Analysts have raised their price target on Teradata from approximately $28.00 to about $39.79 per share, citing the company's strategic shift toward broader annual recurring revenue drivers and improved free cash flow growth prospects.

Analyst Commentary

Bullish analysts point to Teradata's evolving business mix and strengthened cash generation profile as key drivers behind recent upward price target revisions. The move toward a more diversified set of recurring revenue drivers is viewed as supportive of both near term execution and longer term valuation expansion.

Despite an 11% decline in the share price year to date, positive commentary emphasizes that the current valuation may not fully reflect the improving outlook for free cash flow per share, providing scope for multiple re rating if management continues to execute against its strategic roadmap.

Bullish Takeaways

Upward price target revisions into the low $40s indicate meaningful potential upside from current levels and signal confidence that the market is not fully valuing Teradata's earnings and cash flow potential.
The shift from a narrow focus on public cloud ARR to a broader emphasis on multiple ARR drivers is viewed as enhancing revenue durability and supporting higher quality, more predictable growth.
Improving free cash flow per share is highlighted as a core element of the bullish thesis, and some analysts argue that sustained progress in this area could support a higher valuation multiple over time.
The recent share price pullback is described as a constructive opportunity for long term investors to reassess the name, with the combination of strategic repositioning and cash flow trends seen as improving the stock's risk reward profile.

What's in the News

The U.S. Supreme Court declined to hear SAP's appeal, allowing Teradata's antitrust lawsuit over alleged tying of SAP applications to its database to proceed (Reuters).
The company updated its 2025 outlook, guiding to flat to slightly negative total ARR growth and reaffirming double-digit public cloud ARR growth of 14% to 18% and full-year GAAP EPS of $1.22 to $1.26.
Teradata launched AI Services to help enterprises industrialize AI, with a focus on converting pilots into production-ready agentic solutions across industries using its knowledge platform and consulting expertise.
The company introduced Autonomous Customer Intelligence, embedding AI agents across the customer data lifecycle to enable real-time, context-aware actions at scale and to accelerate AI-driven customer experience use cases.
Teradata continued returning capital to shareholders, repurchasing about 1.27% of its shares for $25.9 million in the latest quarter under its long-running buyback program.

Valuation Changes

Fair Value has risen significantly from approximately $28.00 to about $39.79 per share, implying a materially higher intrinsic value estimate.
Discount Rate has increased slightly from roughly 8.67 percent to about 9.02 percent, indicating a modestly higher required return in the valuation model.
Revenue Growth assumptions have shifted from a modest contraction of about 1.18 percent to positive growth of roughly 0.77 percent, reflecting a more constructive topline outlook.
Profit Margin expectations have improved from around 6.85 percent to approximately 8.92 percent, pointing to enhanced anticipated profitability.
Future P/E has risen marginally from about 30.0x to roughly 30.5x, suggesting a slightly higher valuation multiple applied to forward earnings.

Teradata's advanced hybrid and agentic AI capabilities, combined with a proven executive team, position it for sustained leadership and accelerated revenue and margin growth in scaling enterprise AI.
The company's strengths in enterprise data trust, platform interoperability, and regulated-sector analytics uniquely enable premium pricing, high retention, and long-term contract expansion as customers consolidate workloads.
Ongoing cloud transition, shrinking legacy revenue, tough competition, slow AI adoption, and customer churn threaten Teradata's profitability, growth, and ability to sustain recurring revenue.

Catalysts

About Teradata

Provides a connected hybrid cloud analytics and data platform in the United States and internationally.What are the underlying business or industry changes driving this perspective?

Analyst consensus acknowledges Teradata's pivot to hybrid AI as positioning for revenue growth, but this view likely underestimates the extent of the company's first-mover advantage; Teradata's unique capability to deliver agentic AI across both structured and unstructured data in real time could drive market-leading share capture and accelerate ARR and top-line growth far beyond current expectations as enterprises scale AI workloads.
While analysts agree recent go-to-market realignment under the new CRO will gradually improve sales productivity and ARR, the consensus underappreciates the impact from Teradata's expanded executive team-with proven SaaS and AI execution credentials-which can create a step change in pipeline velocity, deepen monetization of the large installed base, and drive a multi-year acceleration in both revenue growth and margin expansion.
As massive data generation accelerates globally through IoT and connected applications, Teradata's demonstrated ability to embed trusted, high-performance analytics and AI at scale across hybrid and multi-cloud environments puts it at the center of a long-term data management upcycle, likely leading to sustained double-digit growth rates in cloud ARR and a structural expansion of enterprise recurring revenue.
Enterprises are beginning to consolidate fragmented analytics, governance and AI workloads onto unified platforms; Teradata's leadership in interoperability and enterprise data trust is likely to position it as the preferred consolidation choice, unlocking both customer retention rates well above historical averages and a favorable mix shift towards higher-margin, long-term contracts, directly benefiting operating margin and EPS.
The rise of real-time analytics needs at the network edge and in regulated industries-where data sovereignty, security, and low-latency AI are paramount-gives Teradata a unique competitive edge, enabling premium pricing power and new revenue streams from verticals previously underserved, thus providing a multi-year tailwind for revenue, gross margin, and overall earnings growth.

Teradata Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

This narrative explores a more optimistic perspective on Teradata compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
The bullish analysts are assuming Teradata's revenue will decrease by 1.2% annually over the next 3 years.
The bullish analysts assume that profit margins will shrink from 8.1% today to 6.8% in 3 years time.
The bullish analysts expect earnings to reach $112.5 million (and earnings per share of $0.92) by about July 2028, down from $138.0 million today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 30.0x on those 2028 earnings, up from 15.3x today. This future PE is lower than the current PE for the US Software industry at 42.7x.
Analysts expect the number of shares outstanding to decline by 0.52% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.67%, as per the Simply Wall St company report.

Teradata Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The accelerating shift of enterprises to native cloud and multi-cloud architectures is reducing demand for legacy on-premises platforms, which makes Teradata's hybrid/on-prem offerings less core to customer IT strategies and puts long-term recurring revenue at risk.
Teradata's efforts to pivot to a recurring cloud SaaS business model are ongoing and not yet complete, with traditional license and support streams in secular decline, leading to persistent top-line volatility as these shrinking revenue streams may not be fully replaced by faster-growing cloud revenues in the near to medium term.
Intense competition from hyperscalers like AWS, Google Cloud, and Microsoft Azure, which increasingly offer integrated analytics solutions and usage-based pricing, is compressing Teradata's margins and eroding its pricing power, impacting future net margins and profitability.
Broader adoption of AI, ML, and open-source data tools is drawing IT budget and developer interest away from proprietary platforms, with the risk that Teradata's recent AI innovations such as Enterprise Vector Store may not scale quickly enough to offset share loss, threatening future revenue and earnings growth.
Teradata continues to see challenges in customer retention and faces higher customer acquisition costs, as evidenced by annual recurring revenue declining year-over-year and ongoing reliance on a large but static customer base, which may limit sustainable revenue and ARR growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

The assumed bullish price target for Teradata is $28.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Teradata's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $28.0, and the most bearish reporting a price target of just $21.0.
In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $1.6 billion, earnings will come to $112.5 million, and it would be trading on a PE ratio of 30.0x, assuming you use a discount rate of 8.7%.
Given the current share price of $22.09, the bullish analyst price target of $28.0 is 21.1% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystHighTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystHighTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystHighTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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