Acquisitions continue to drive OpenText, says Industrial Alliance

Ahead of its first quarter results OpenText (OpenText Stock Quote, Chart, News: TSX:OTC, Nasdaq:OTEX) is looking more or less fully valued but acquisitions could soon add considerable value to the company’s stock, says Industrial Alliance Securities analyst Blair Abernethy.

On Thursday, November 3, OpenText will report its Q1, 2017 results. The company is following on a fourth quarter in which it earned $0.71 on revenue of $484-million, a topline that was up 0.2 per cent over the same period a year prior.

“With our recent acquisitions, Release 16, EP Series, our enhancement packs, and Magellan, our next generation cognitive platform, we expect to grow our market share in Fiscal 2017,” said CEO Mark J. Barrenechea.

Abernethy says he expects OpenText will post Adjusted EPS of $0.90 on revenue of $480.6-million in the first quarter of 2017. The analyst says he will be focusing on certain data points next week.

“With the Q1 results, we will be keying in on signs of progress with recent acquisitions,” says Abernethy. “Recall that OpenText spent $315M in September to acquire HP’s Communication Management assets (estimated revenue of $110125M) and spent $163M on Recommind Inc. in late July (estimated revenue of $70-80M). We will also be watching for signs of traction with the recently released Suite 16 upgrade.”

In a research update to clients today, Abernethy maintained his “Buy” rating and one-year price target of (U.S.) $66.00 on OpenText, implying a return of just 1 per cent at the time of publication.

Abernethy says he will be watching the pending closing of OpenText’s Documentum purchase closely, as he believes that pickup alone could add between $7.00 and $9.00 to the company’s share price.

The analyst expects OpenText will earn $3.91 per share on revenue of $2.06-billion in fiscal 2017. He thinks these numbers will improve to earnings of $4.44 of a topline of $2.08-billion the following year.