Why Teradata Stock Exploded Higher Today

Teradata (NYSE: TDC) stock rocketed 26.5% through 10:25 a.m. ET Wednesday after the company crushed its third-quarter earnings report last night.

Heading into the report, analysts forecast the data management specialist would earn $0.54 per share on $406.3 million in quarterly revenue. Teradata actually earned $0.72 per share (adjusted for one-time items) on sales of $416 million -- then guided higher for both Q4 and the year.

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Teradata Q3 earnings

While Teradata beat on earnings, its earnings as calculated according to generally accepted accounting principles (GAAP) fell significantly short of the $0.72 adjusted profit noted above. GAAP profit was only $0.42 per share -- but that's still up 27% year over year. Free cash flow rose similarly, to $88 million for the quarter.

Also worth highlighting: Revenue of $416 million, although better than expected, was down 5% year over year, and recurring revenue slimmed by 2%.

CEO Steve McMillan still called this a quarter of "solid execution," noting free cash flow in particular exceeded his expectations.

Is Teradata stock a buy?

Turning to guidance, Teradata warned that sales are still falling, with revenue probably down 2% to 4% year over year, and recurring revenue in particular falling 1% to 3%. Management nonetheless predicts GAAP profit will be up from last year, $0.26 to $0.30 per share, and ahead of analyst estimates.

Full-year profit should range from $1.22 to $1.26, with free cash flow between $260 million and $280 million. On a $26 stock with a $2.5 billion market cap, that works out to a P/E ratio of barely 21 -- and a cheap price-to-free-cash-flow ratio of barely 9.2.

Even after today's run-up, Teradata looks more than cheap enough to buy.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.