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Teradata Corporation (NYSE:TDC) is a data analytics company that specializes in data warehousing and other big data operations. It offers investors a unique opportunity to invest specifically in big data as many of its top competitors like Oracle (NYSE:ORCL) and SAP are conglomerates who are heavily invested in several other realms of systems and services. Shares are down around 6 percent today as the company missed earnings. In this article, I explain why this drop in stock price gives investors the perfect opportunity to pick up Teradata at a bargain.

Earnings Miss

Following a short bear run and missed earnings, Teradata shares are down about 10 percent over the last five business days. The earnings miss resulted from Teradata's revenue expectations missing coupled with a lowered revenue guidance going forward. Analysts expected $667 million in revenue, while Teradata reported $647 million, for a 3 percent miss. Teradata reported that future revenue growth would be towards the low end of its 12 to 14 percent estimate. Earnings actually beat estimates with 69 cents per share (non-GAAP) with estimates guessing 67 cents per share. The company also said their future earnings growth would be towards the mid to high range of previous estimates.

Even though earnings beat, it is not surprising that Teradata shares dropped 6 percent after this report. With growing companies like Teradata, making revenue estimates is much more important than earnings estimates as consistent misses in revenue growth can really hurt the company's overall size at it matures. However, the higher than expected earnings shows that Teradata can grow into a highly profitable company and investors can feel more confident about issues like scalability and long term sustainability as the company is demonstrating that it can be consistently profitable.

Growth Opportunity

Teradata is expected to finish 2012 with non-GAAP earnings per share of $2.79. This number is expected to grow 15 percent to $3.21 in 2013. Analysts expect non-GAAP earnings to continue growing 15 percent per year over the next 5 years. GAAP earnings per share have typically been between 85 percent and 90 percent of non-GAAP earnings, with executive options compensation accounting for the difference.

For revenue, analysts expect revenue to increase 12.6 percent from 2012 to 2013 to result in $3 billion in 2013 revenue. After the most recent guidance, this number will probably be adjusted down to just south of $3 billion. These are very solid revenue estimates considering that the company reported $1.7 billion in revenue in 2009.

Valuation

Teradata has a 1 year GAAP forward P/E ratio of 22.75, which is high compared to the market as a whole, but is quite low when compared to other mid-cap systems companies like Salesforce.com (NYSE:CRM) and Workday (NYSE:WDAY), who still struggle with profitability. I currently put a 1 year target price of $75 on the stock, which is 18.4 percent higher than its current price. After that, I would expect 10 to 12 percent growth per year.

Recommendation

I currently have a Buy recommendation on Teradata shares. The company's fundamentals look very sturdy for a systems company and it has a proven track record of profitability, with $1.4 billion in retained earnings and a company history that dates back to 1979. I believe big data is just as attractive of an industry as cloud computing and global payments, and Teradata should have no problem meeting its future growth projections.

For those looking for mergers and acquisitions arbitrage, I do not believe that Teradata is an acquisition candidate for any company at the moment. It was spun off of NCR in 2007 and many of the companies large enough to acquire it, like Oracle and SAP, have their own suites of data warehouse software. Despite being much smaller than its competitors, I believe Teradata has what it takes to compete with these big companies.

Source: Time To Buy Teradata At A Bargain After Missed Earnings