Summit Research Downgrades Teradata Following Earnings Report

• Teradata Corporation TDC reported its third-quarter financial results last Thursday, slightly missing estimates for both earnings and revenue.
• Analysts at Summit Research downgraded the stock from Hold to Sell, while trimming their price target from $27 to $22.
• The anlaysts argue that they expect "execution and secular trends to forestall revenue growth."

In a report issued Sunday, analysts at Summit Research downgraded Teradata from Hold to Sell on the belief that the business will remain in transition well beyond 2016, "as the company looks to divest its marketing analytics business, and doubles down on the core EDW business by launching a software-only version and private and public cloud versions of the product."

According to the report, Teradata is working on releasing a new subscription license model to accompany the new versions of the EDW product. The analysts anticipate this will have a negative impact on the top line over the near term. Consequently, they expect revenue to fall not only in 2016, but also in 2017. Although management expects to reduce operating costs by roughly $180 million in 2016 to provide some support for earnings, the firm expects the move "to impact morale of the workforce which could lead to talented employees leaving the firm (the company already saw some of its talented employees leave in the past few months including Scott Gnau, Christopher Rocca, Jim Donovan)."

In this context, analysts at Summit "cannot foresee the company returning to revenue growth even in the medium term, and hence are moving to a SELL rating."

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.