OpenText gets price target raise to (U.S.) $64.00 at Industrial Alliance

Ahead of OpenText’s (OpenText Stock Quote, Chart, News: TSX:OTC, Nasdaq:OTEX) fourth quarter results, Industrial Alliance Securities analyst Blair Abernethy has raised his target price on the stock.

On Wednesday, July 27, after market close, OpenText will report its fourth quarter and fiscal 2016 results. For the fourth quarter, Abernethy says he is expecting the company will report adjusted earnings of $0.90 on revenue of $485.8-million, compared to the street consensus of adjusted earnings of $0.94 on revenue of $482.4-million.

Despite the fact that his bottom line expectations fall below the mean, Abernethy today raised his price target on OpenText. The analyst explains this is because he is introducing his fiscal 2018 estimates and rolling forward his valuation. The result is that Abernethy today maintained his “Buy” rating, but raised his one-year price target on OpenText from (U.S.) $58.00 to $64.00, implying a return of five per cent at the time of publication.

“Our target price increases to $64.00 (was $58.00) as we roll forward to F2018 and is based upon our blended three-factor approach (P/E, EV/EBITDA, and DCF) and equates to a 14.3x P/E on our F2018E,” explains the analyst. “We see near-term upside to our target from the pending HP Inc. and Recommind asset acquisitions, as well as from the potential Documentum acquisition, which could occur in the next few weeks.”

Abernethy says he sees several potential catalysts for Opentext, including medium to large scale acquisitions that are not yet in his estimates, the potential for improvement in organic license revenue growth from the Suite 16 (formerly known as “Blue Carbon”) product cycle, and a strategic alliance with Ernst and Young designed to deliver enhanced Enterprise Information Management solutions. The analyst also says he will be watching the Dell/EMC merger closely for signs that signs that the enterprise content management Documentum business might be sold off.