Organic growth offers the potential to drive OpenText (TSX:OTC, Nasdaq:OTEX) higher, but acquisitions represent the core of its upside, says Cormark analyst Richard Tse. (All figures in U.S. dollars)
OpenText will report its 2015 second quarter financial results after the close on January 27th. Tse says he expects the company will generate operating EPS of $1.00 a share on revenue of $486-million, topping the street’s expectation of $0.97 a share on the same topline.
Tse says OpenText’s recent acquisitions, Actuate and Informative Graphics, drew investors’ gaze away from the company’s recent initiative to generate more organic growth and back to something the company does really well: acquire and integrate other companies.
“…of the larger cap tech names in our universe, OpenText continues to be one of our favourites given its disciplined regimen of acquisitions,” said Tse. “In our view, that strategy helps de-risk the Company’s growth targets relative to a pure organic approach – it also explains why OpenText has had a consistent EPS growth rate of ~25% in the last 7 years.”
In a research update to clients today, Tse maintained his “Buy” rating and (U.S.) $70.00 one-year price target on OpenText.