Last Update 21 Jan 26

Fair value Increased 0.96%

TDC: Free Cash Flow And ARR Focus Will Shape Buyback Impact

Narrative update on Teradata

Teradata's fair value estimate edges up to $28.82 from $28.55 as analysts factor in higher price targets, including the recent Barclays move to $27 and Citizens JMP's upgrade with a $42 target. These changes reflect their updated views on the company's cash flow focus and sector setup.

Analyst Commentary

Recent research on Teradata highlights a split view. Some bullish analysts see upside tied to cash flow execution and a broader growth focus, while more cautious analysts point to valuation and sector positioning as constraints.

Bullish Takeaways

Bullish analysts point to a company shift toward growing free cash flow per share over the next several years, which they view as more shareholder friendly than a narrower focus on public cloud metrics alone.
The move to emphasize overall annual recurring revenue, not just public cloud ARR, is seen as a way to support more durable growth in free cash flow and potentially support higher valuation multiples if execution stays on track.
A US$42 price target from bullish analysts signals confidence that current pricing already reflects a lot of caution, especially with the shares cited as being 11% lower year to date in their work.
Supportive views also lean on a sector backdrop where some see software as out of favor, which they think could create room for re rating if fundamentals hold up.

Bearish Takeaways

Bearish analysts keep an Underweight stance even as they lift their price target to US$27, suggesting they see limited upside to their fair value view at current levels.
Their updated work frames Teradata within a broader software group where valuations are viewed as low, yet they still do not see enough company specific momentum to justify a more positive rating.
Cautious voices highlight that the improved outlook for software into 2026 does not automatically translate into stronger execution for every name, and they appear to see Teradata as relatively less attractive within that peer set.
The gap between a US$27 target from bearish analysts and the US$42 target from bullish analysts underlines uncertainty around how effectively Teradata can turn its broader ARR focus into sustained cash flow growth.

What's in the News

Teradata announced a new share repurchase program authorizing up to US$500 million of buybacks, with no stated expiration date. (Buyback Transaction Announcements)
The Board of Directors approved a new buyback plan on November 17, 2025, adding further capacity for future repurchases. (Buyback Transaction Announcements)
From July 1, 2025 to September 30, 2025, Teradata repurchased 1,201,685 shares for US$25.9 million, representing 1.27% of shares, and completed a total of 102,237,294 shares repurchased, representing 82.24% for US$3,855.79 million under the program first announced on February 9, 2012. (Buyback Tranche Update)
Management issued earnings guidance for Q4 2025 and updated full year 2025 guidance, including recurring and total revenue ranges in constant currency, GAAP diluted EPS of US$0.26 to US$0.30 for Q4 2025, and US$1.22 to US$1.26 for the full year, along with expectations for public cloud ARR and total ARR in constant currency. (Corporate Guidance: New/Confirmed)
Teradata launched AI Services aimed at helping enterprises move AI pilots into production, combining consultants, methodology, and its data and AI tools, with use cases that span financial crime compliance, healthcare imaging, customer engagement, and other data heavy workloads. (Product-Related Announcements)

Valuation Changes

Fair Value Estimate edges up slightly from US$28.55 to US$28.82, reflecting modest model adjustments rather than a major shift in outlook.
Discount Rate moves marginally from 9.01% to 9.02%, a very small change that lightly affects the present value of projected cash flows.
Revenue Growth Assumption is essentially unchanged, at 4.98% in both the prior and updated models, indicating a stable top line view in the analysis provided.
Net Profit Margin remains effectively flat, moving only in the fourth decimal place from 9.47% to 9.47%, suggesting no material change in expected profitability in the model.
Future P/E Multiple ticks up slightly from 21.01x to 21.22x, implying a marginally higher valuation being applied to forward earnings in this updated work.

Cloud-neutral platform, ongoing product innovation, and strategic partnerships position Teradata to capture demand from AI-driven workloads and expand its addressable market.
Organizational streamlining and increased recurring revenue are expected to improve margins, operating leverage, and long-term earnings growth.
Persistent top-line pressures, competitive threats, and slow cloud migration threaten Teradata's revenue stability, margin expansion, and long-term relevance amid evolving industry trends.

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?

The accelerating adoption of AI and GenAI initiatives among large enterprises is driving a surge in demand for robust data management and analytics infrastructure, positioning Teradata's hybrid platform to capture new, high-value workloads-supporting sustained recurring revenue growth and platform usage.
The enterprise migration toward multi-cloud and hybrid cloud architectures continues to expand, and Teradata's cloud-neutral, open ecosystem (along with strong on-prem capabilities) is enabling the company to serve complex, regulated industries and data sovereignty needs, broadening its addressable market and supporting both cloud ARR growth and customer retention.
Ongoing product innovation (AI Factory, Enterprise Vector Store, LLMOps, and open source MCP server) is increasing platform differentiation by integrating AI/ML capabilities and supporting industry-specific use cases, which is expected to drive higher average contract values and improve net retention rates over time.
Recent organizational streamlining, leadership changes, and integration of go-to-market/product/marketing functions are expected to create meaningful operating leverage, reduce SG&A and service-related costs, and ultimately expand net margins and free cash flow as recurring revenue becomes a larger portion of the business.
Strategic partnerships (e.g., with NVIDIA, ServiceNow, Salesforce, Fivetran) are providing access to new AI-driven workloads and enabling seamless data integration across enterprise environments, further driving ARR expansion and increasing Teradata's relevance in the converging analytics, data warehousing, and AI landscape, which should positively impact revenue and long-term earnings.

Teradata Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Teradata's revenue will decrease by 0.9% annually over the next 3 years.
Analysts assume that profit margins will shrink from 6.6% today to 6.2% in 3 years time.
Analysts expect earnings to reach $101.6 million (and earnings per share of $0.98) by about September 2028, down from $110.0 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $125 million.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.3x on those 2028 earnings, up from 18.1x today. This future PE is lower than the current PE for the US Software industry at 36.2x.
Analysts expect the number of shares outstanding to decline by 1.25% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 9.27%, as per the Simply Wall St company report.

Teradata Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Ongoing revenue headwinds, with total revenue declining 6–7% year-over-year and recurring revenue declining 4% year-over-year, highlight persistent top-line pressure that, if not reversed, could dampen long-term earnings growth and reduce the company's ability to expand margins.
Difficulty in accelerating cloud migrations and recurring revenue growth-cloud ARR growth, though positive at 15–17%, remains partly driven by migration/expansion within the existing base rather than robust net-new customer wins; reliance on internal deal pull-forwards in Q2 also suggests inconsistent underlying momentum, posing risks to sustainable revenue expansion and net margin improvement.
Heightened competition from cloud-native hyperscalers (AWS, Azure, Google) and the rise of open-source/lakehouse analytics solutions risks eroding Teradata's addressable market and pressuring pricing, which could negatively impact long-term revenue resilience and force higher R&D expense to maintain competitiveness, thereby suppressing net margins.
Industry shifts toward serverless, cloud-native, and AI-integrated platforms may undermine the relevance of Teradata's hybrid and on-prem offerings over time, potentially increasing customer churn and volatility in earnings if migration to Teradata's newer platforms lags or fails to attract incremental workloads at scale.
Ongoing declines and uncertainties in service revenues (down 19–20% year-over-year) and the need for recurring restructuring/cost optimization indicate structural challenges; continued contraction could limit operational flexibility and curtail free cash flow generation despite efforts to optimize the expense base.

Valuation

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

The analysts have a consensus price target of $24.444 for Teradata based on their expectations of its future earnings growth, profit margins and other risk factors. 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 $22.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.6 billion, earnings will come to $101.6 million, and it would be trading on a PE ratio of 28.3x, assuming you use a discount rate of 9.3%.
Given the current share price of $21.06, the analyst price target of $24.44 is 13.8% 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

AnalystConsensusTarget 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 AnalystConsensusTarget 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 AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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