Last Update 05 Feb 26

Fair value Increased 0.63%

TDC: Free Cash Flow Focus And ARR Mix Will Frame Buybacks

Narrative update

The analyst price target for Teradata has been lifted by about $0.20 to $29.00, with analysts citing refreshed software sector views, company-specific expectations for free cash flow per share, and updated assumptions around revenue growth, discount rate, and future P/E as key reasons for the adjustment.

Analyst Commentary

Recent research on Teradata highlights a mix of constructive and cautious views, with price targets and ratings reflecting different expectations around execution, free cash flow per share, and how the market is currently valuing the stock.

Bullish Takeaways

Bullish analysts point to Teradata’s repositioning around free cash flow per share as a key driver for potential upside in the stock’s valuation, especially as this metric becomes a central focus in their models.
One upgrade to an Outperform rating with a US$42 price target signals confidence that the company’s broader focus on annual recurring revenue, alongside other drivers, could support higher long term earnings power.
Supportive views highlight that software sector assumptions for 2026 are constructive for Teradata, with stable macro and IT spending seen as a backdrop that could help the company execute against its revenue and cash flow goals.
Some bullish analysts view the stock’s year to date share price decline of 11% as creating a more appealing entry point relative to their expectations for future free cash flow per share.

Bearish Takeaways

Bearish analysts maintain cautious ratings, such as Underweight, even while lifting price targets. This suggests concern that execution on growth, including ARR, may not fully support higher valuation multiples.
The increase in one target to US$27 from US$24, paired with a still cautious stance, indicates that while forecasts have been refreshed, there is still hesitation about upside relative to current pricing and sector peers.
Some cautious views reflect the idea that, despite a more favorable setup for software in 2026, Teradata may still face challenges converting its repositioning into consistent revenue growth and free cash flow outcomes.
Bearish analysts appear focused on the risk that a shift away from a narrow public cloud ARR focus toward a broader framework could introduce execution complexity, which may cap near term valuation expansion.

What's in the News

Teradata announced Enterprise AgentStack, an open and connected stack aimed at helping enterprises move AI agents from pilot to production across multi agent and hybrid environments, with components for secure data discovery, agent creation, deployment, and governance (Product related announcement).
Enterprise AgentStack is designed to let agents tap into Teradata customers' mission critical data and context intelligence for tasks such as querying structured and unstructured data, document extraction, semantic search, RAG grounded responses, and SQL generation and optimization (Product related announcement).
Capabilities within Enterprise AgentStack include AgentBuilder for no code and pro code agent development using frameworks like Karini.ai, LangGraph, CrewAI, and Flowise, and Enterprise MCP for securely integrating Teradata platform data and tools into agent workflows (Product related announcement).
Teradata Corporation announced a share repurchase program authorizing the company to buy back up to US$500 million of its shares, with no stated expiration date for the program (Buyback transaction announcement).
The Board of Directors of Teradata Corporation authorized the buyback plan on November 17, 2025, providing the corporate approval framework for the repurchase program (Buyback transaction announcement).

Valuation Changes

Fair Value: updated slightly from US$28.82 to US$29.00, representing a modest upward adjustment in the modelled price target.
Discount Rate: moved modestly higher from 9.02% to 9.10%, reflecting a small change in the assumed risk profile used in the valuation work.
Revenue Growth: revised upward from 4.98% to 7.16%, indicating higher modelled expectations for top line expansion.
Net Profit Margin: adjusted marginally from 9.47% to 9.47%, representing a very small change in the profitability assumption.
Future P/E: updated slightly from 21.22x to 21.40x, indicating a minor change in the multiple applied to future earnings in the model.

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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