OpenText is looking cheap, National Bank Financial says

Ahead of the company’s fourth quarter results, National Bank Financial analyst Richard Tse thinks there is plenty of upside in OpenText (TSX, Nasdaq:OTEX).

On August 3, after market, OpenText will report its fourth quarter and fiscal 2017 results. Tse thinks the company will post EPS of $0.57 on revenue of $665-million, in-line with the street consensus of EPS of $0.58 on $658-million.

Tse says OpenText, which has fallen from highs near (U.S.) $35.00 in May, is undervalued.

“We continue to believe OTEX is an attractively valued name that’s not pricing in a growing base of recurring revenue through acquisitions that could add further operating leverage judging by Management’s comments regarding a “significant room for margin expansion –long-term”,” the analyst says. “We also believe the Company will continue to effectively deploy capital, especially considering the Company’s flexible capital structure post recent financings. In our view, we believe OpenText has capacity in the near-term to do upwards of $800 mln in transactions.”

In a research update to clients today, Tse maintained his “Outperform” rating and one-year price target of (U.S.) 45.00, implying a return of 35 per cent at the time of publication.

Tse thinks OpenText will generate EBITDA of $763-million on revenue of $2.30-billion in fiscal 2017. He expects those numbers will improve to EBITDA of $978-million on a topline of $2.71-billion the following year.