IT Hardware Stocks

Teradata Corporation June 2014 Quarterly Valuation $TDC

TeradataLogoVerticalBenjamin 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 5 Undervalued Companies with a High Beta.  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 specific look at how Teradata Corporation (TDC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Teradata Corporation (Teradata) is engaged in analytic data solutions, including integrated data warehousing, big data analytics and business applications. The Company’s data data warehousing solutions are consisted of software, hardware, and related business consulting and support services. Its solutions integrate an organization’s departmental and enterprise-wide data about customers, financials and operations into a single integrated data warehouse. Its analytic technologies then transform that data into actionable information. The Company serves customers across a range of industries globally ranging from small departmental and corporate implementations to data warehouses and marketing applications. Teradata operates from four main locations in the United States: Dayton, Ohio; Johns Creek (Atlanta), Georgia; Rancho Bernardo (San Diego), California; and Indianapolis, Indiana. In June 2012, the Company acquired eCircle.

TDC Chart

TDC data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $41.89
MG Value $61.92
MG Opinion Undervalued
Value Based on 3% Growth $34.09
Value Based on 0% Growth $19.99
Market Implied Growth Rate 4.66%
NCAV $2.09
PEmg 17.82
Current Ratio 1.88
PB Ratio 3.57

Balance Sheet – 3/31/2014

Current Assets $1,659,000,000
Current Liabilities $882,000,000
Total Debt $240,000,000
Total Assets $3,178,000,000
Intangible Assets $1,283,000,000
Total Liabilities $1,329,000,000
Outstanding Shares 157,700,000

Earnings Per Share

2014 (estimate) $2.60
2013 $2.27
2012 $2.44
2011 $2.05
2010 $1.77
2009 $1.46
2008 $1.39
2007 $1.10
2006 $1.06
2005 $1.14
2004 $0.76

Earnings Per Share – ModernGraham

2014 (estimate) $2.35
2013 $2.15
2012 $2.00
2011 $1.71
2010 $1.47
2009 $1.29

Conclusion:

Teradata Corporation is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the low current ratio, the lack of dividend payments, and the high price-to-book ratio.  The Enterprising Investor’s only concern is the lack of dividend payments.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and its competitors including a review of ModernGraham’s valuation of International Business Machines (IBM) and ModernGraham’s valuation of Oracle Corp (ORCL).  As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from $1.47 in 2010 to an estimated $2.35 for 2014.  This demonstrated growth is greater than the market’s implied estimated 4.66% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value above the market price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Teradata Corporation (TDC)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Be sure to review the previous ModernGraham Valuations of Teradata Corporation (TDC)!

Disclaimer:  The author did not hold a position in Teradata Corporation (TDC) or any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.

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