Cantor Fitzgerald’s Liston initiates coverage of Open Text with a HOLD rating

Liston says that while Open Text has a good track record of integrating its acquisitions, the company has had some recent hiccups with the pickups of MetaStorm and Global 360, which were acquired in February and July of last year, respectively.For two decades, Open Text (TSX:OTC) has lived in the considerable shadow of Research in Motion. Though their businesses could not be more different, the comparisons between the two company’s have persisted because of their physical proximity. Recently, the pair have come to share another similar feature; their market capitalizations have grown closer than ever.

While RIM has been sliding, Open Text has gone the other way, growing its revenue from $595.7-million to $1.2-billion over the past five years. The company’s stock, meanwhile, has spiked from just over $15 in 2006 to recent highs over $60.

Cantor Fitzgerald analyst Tom Liston says he likes that new CEO Mark Barrenechea has decided to focus more on organic growth than the acquisitions that have recently defined the Waterloo-based company’s expansion strategy, but he is wary that the transition will produce soft results in the short term. For that reason, Liston today initiated coverage of Open Text with a HOLD recommendation and a one-year price target of (US) $56 per share.

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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.

Liston says that while Open Text has a good track record of integrating its acquisitions, the company has had some recent hiccups with the pickups of MetaStorm and Global 360, which were acquired in February and July of last year, respectively. The Cantor Fitzgerald analyst has concerns that license revenue, which he says is a indicator of core organic growth, now represents a total of 24% of all Open Text’s revenue, down from 30% in 2006.

Shares of Open Text on the TSX closed today down .9% to $50.28.

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