Information Technology Stocks

Teradata Corp Valuation – January 2017 $TDC

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – January 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Teradata Corporation (TDC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Teradata Corporation (Teradata) is a provider of analytic data platforms, marketing and analytic applications, and related services. The Company’s analytic data platforms consist of software, hardware and related business consulting and support services for data warehousing, and big data analytics. It operates in two segments: data and analytics, and marketing applications. Its services include a range of offerings, such as consulting to help organizations design, optimize and manage their analytic and big data environments, either on-premise or in the cloud. Its value-added consulting services provide expertise in data architecture services, cloud, private cloud, managed services and related installation services. In addition to its consulting services it offers a set of support services. Teradata operates from various locations within the United States with the primary locations being Dayton, Ohio; Johns Creek (Atlanta), Georgia, and Rancho Bernardo (San Diego), California.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of TDC – January 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $3,824,916,408 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.20 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -52.66% Fail
6. Moderate PEmg Ratio PEmg < 20 32.86 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.08 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.20 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.66 Pass
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

EPSmg $0.88
MG Growth Estimate -4.25%
MG Value $1.03
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $12.76
MG Value based on 0% Growth $7.48
Market Implied Growth Rate 12.18%
Current Price $28.92
% of Intrinsic Value 2819.16%

Teradata Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the lack of earnings stability or growth over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $2 in 2012 to an estimated $0.88 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 12.18% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Teradata Corporation revealed the company was trading above its Graham Number of $13.15. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 32.86, which was below the industry average of 38.13, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $1.03.

Teradata Corporation scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $1.03
Graham Number $13.15
PEmg 32.86
Current Ratio 2.20
PB Ratio 4.08
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $1,517,000,000
Total Current Liabilities $688,000,000
Long-Term Debt $545,000,000
Total Assets $2,314,000,000
Intangible Assets $602,000,000
Total Liabilities $1,382,000,000
Shares Outstanding (Diluted Average) 131,600,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.07
Dec2015 -$1.53
Dec2014 $2.33
Dec2013 $2.27
Dec2012 $2.44
Dec2011 $2.05
Dec2010 $1.77
Dec2009 $1.46
Dec2008 $1.39
Dec2007 $1.10
Dec2006 $1.06
Dec2005 $1.14
Dec2004 $0.76
Dec2003 $0.50

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.88
Dec2015 $1.03
Dec2014 $2.26
Dec2013 $2.15
Dec2012 $2.00
Dec2011 $1.71
Dec2010 $1.47
Dec2009 $1.29
Dec2008 $1.17
Dec2007 $1.01
Dec2006 $0.88
Dec2005 $0.68
Dec2004 $0.39
Dec2003 $0.17

Recommended Reading:

Other ModernGraham posts about the company

Teradata Corporation Analysis – September 2015 Update $TDC
The 6 Best Stocks For Value Investors This Week – 6/13/15
Teradata Corporation Analysis – June 2015 Update $TDC
5 Undervalued Companies for the Enterprising Investor Near 52 Week Lows – May 2015
23 Companies in the Spotlight This Week – 3/9/15

Other ModernGraham posts about related companies

Akamai Technologies Inc Valuation – January 2017 $AKAM
Motorola Solutions Inc Valuation – December 2016 $MSI
Science Applications International Corp Valuation – Initial Coverage $SAIC
Acxiom Corporation Valuation – November 2016 $ACXM
ACI Worldwide Inc Valuation – November 2016 $ACIW
Equinix Inc Valuation – August 2016 $EQIX
Qualcomm Inc Valuation – August 2016 $QCOM
Verisign Inc Valuation – August 2016 $VRSN
Akamai Technologies Inc Valuation – August 2016 $AKAM
Motorola Solutions Inc Valuation – August 2016 $MSI

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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