Ahead of Q1 earnings, Cormark’s Tse reiterates Open Text as Top Pick

Tse says Open Text’s Q1 is traditionally soft, but he expects this one to be in line or better than consensus, mostly because of the contribution from the recent pickup of cloud-based electronic messaging company Easylink, which was acquired on May 1st, for $310-million.After the close of the market tomorrow, Open Text (TSX:OTC) will report its Q1 2013 results. The company finished 2012 with record revenue and non-GAAP earnings, topping $1.2-billion and $4.60 a share, respectively.

Cormark analyst Richard Tse says Open Text is his Top Pick. He says the company’s growth through acquisition strategy has delivered an earnings growth rate of more than 30% over the past five years, and he expects the company to deliver at least 20% earnings growth in 2013. With a 2013 P/E of 9.5x earnings, Tse says he believes Open Text remains attractively valued in light of its exceptional growth. In an update to clients Monday, he reiterated his Top Pick rating and (US)$85 target price on OTEX.

Waterloo-based Open Text sells software that enables companies to manage their content. The company’s various product offerings exist under a parade of acronyms that relate to the way companies use their content to collaborate and engage clients and meet regulatory requirements. These include Enterprise Content Management (ECM), Enterprise Information Management (EIM), Customer Experience Management (CEM) and Business Process Management (BPM). The company now has more than 5000 employees in 31 countries.

Tse says Open Text’s Q1 is traditionally soft, but he expects this one to be in line or better than consensus, mostly because of the contribution from the recent pickup of cloud-based electronic messaging company Easylink, which was acquired on May 1st, for $310-million. The Cormark analyst expects the company will earn $1.18 per share on revenue of $342-million. The street consensus has the company earning $1.16 on revenue of $334.5-million.

At press time, shares of Open Text on the TSX were up 1.6% to $53.10.

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