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Analyzing Teradata’s Value Proposition in the IT Consulting Space

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May. 11 2016, Updated 1:09 p.m. ET

Teradata’s scale in the software space

Earlier in this series, we discussed Teradata’s (TDC) recently announced fiscal 1Q16 earnings. FireEye (FEYE) and Tableau Software (DATA) also announced their fiscal earnings on May 5, 2016.

Now, let’s look at the value proposition of the company in the IT (information technology) consulting subsector. Let’s start with Teradata’s size. As of May 9, 2016, and as the below chart shows, International Business Machines (IBM) was the largest player by market capitalization in this space. It is followed by Wipro (WIT). Teradata is a relatively new and small player in this space.

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Teradata’s enterprise value multiples

Now let’s look at Teradata’s EV/EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple. We’ll also look at other players in this space.

Teradata was trading at a forward EV/EBITDA multiple of ~6.0x on May 9, 2016. This metric was way lower than its peers IBM and Wipro at ~8.43x and ~8.91x, respectively.

Teradata’s dividend yield

IBM’s forward annual dividend yield was ~3.8% as of May 9, 2016. Wipro’s forward dividend yield was ~1.4%. Teradata doesn’t pay dividends. Investors who wish to gain exposure to Teradata could consider investing in the SPDR S&P 500 ETF (SPY). While SPY invests ~0.02% of its holdings in Teradata, it also invests ~8% of its holdings in application software.

In the final part of our series, we’ll see what kind of recommendations analysts are giving for Teradata.

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