OpenText is building momentum, says Cormark

A better than expected second quarter has Cormark analyst Richard Tse feeling bullish about OpenText (OpenText Stock Quote, Chart, News: TSX:OTC, Nasdaq:OTEX).

Yesterday, OpenText reported its Q2, 2016 results. The company earned (U.S.) $87.74-million on revenue of $465.3-million.

“The strength of fiscal 2016 Q2 shows the potential of digital transformation for our customers and the Open Text business model: Total revenues of $465.3-million were up 6 per cent in constant currency, year over year; 82 per cent of our total revenue was recurring; and adjusted operating income of $172-million was up 12 per cent, year over year,” said CEO Mark J. Barrenechea. “Release 16 is the world’s first digital platform, and we plan on making strategic investments in the coming quarters to enable our install-base, new customers and partners to fully capture the power of our next-generation platform.”

Tse says OpenText is building momentum on numerous fronts, noting that the company is hitting the sweet spot of an upcoming product cycle, has a strong base of recurring revenue, and has just begun its cross-selling opportunities.

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“In a backdrop of uncertainty and caution across tech, OpenText bucked that market trend last night with solid Q2/F16 results and a confident outlook for the remainder of F2016, “says Tse. “Bottom line, the results were consistent with our recent earnings preview on OpenText where we called for continuing gains in profitability. All in, we believe the continued operating prowess and ability to capture synergies from acquisitions allowed the company to continue making such gains. We also believe the quality of the revenue continues to be strong particularly in licenses which showed a surprising 19.1% increase in constant currency. Not only was that increase strong, it was broad based across products and verticals.”

In a research update to clients today, Tse maintained his “Buy” rating and one-year target of (U.S.) $55.00 on OpenText.