Cormark maintains price target but downgrades high-flying Open Text

Cormark analyst Richard Tse says Open Text's focus on organic growth is a sensible decision, but the dual mandate of pursuing organic and acquisition growth could be operationally challenging

Cormark analyst Richard Tse says he likes the organic growth prospects for Waterloo-based Open Text (TSX:OTC), but the run in the company’s share price this year is pricing in all his positive expectations.

Shares of Open Text have been on fire in 2013. The company ended last year at $55.63 and recently topped the $80 mark.

Tse says the stock, however, is still not expensive, trading at 13.2x fiscal 2014 P/E numbers. But Open Text, he says, has grown primarily through acquisition and the recent stock price appreciation is adding risk to the name “given the volatile track record of organic growth over the past 18 months.”

The Cormark analyst says Open Text’s focus on organic growth is a sensible decision, but the dual mandate of pursuing organic and acquisition growth could be operationally challenging.

In a research update to clients this morning, Tse reiterated his one-year price target of $80 on Open Text, but downgraded the stock from BUY to Market Perform.

On Wednesday, after market, Open Text will release its Q1, 2014 numbers. Tse, noting that the first quarter is traditionally soft for the company, is expecting operating EPS of $1.28 on revenue of $331-million, in-line with the street consensus.

Shares of Open Text on the TSX closed today down .9% to $80.62

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