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Now is a good time to buy Open Text: National Bank Financial


OpenTextWith its stock flagging of late, National Bank Financial analyst Richard Tse says this is a good time to be looking at Open Text (Open Text Corp. Stock Quote, Chart, News: TSX, Nasdaq: OTEX).

In a research update to clients today, Tse maintained his “Outperform” rating and one-year price target of (U.S.) $50.00 on Open Text, implying a return of 45 per cent at the time of publication, including dividend.

Though the general trend since late last year has been upward with the stock, a pullback in the second half of June is an opportunity for investors, the NBF analyst says.

“On the heels of OpenText’s annual user conference (Enterprise World 2018, July 10-12) and fiscal Q4 (June) results, we thought it would be worthwhile to provide some broad perspective on what could be viewed as a polarizing name,” the analyst said. “More importantly, we show why over the long-term this name has been so compelling, particularly off the pullbacks. This is particularly relevant as the stock has not done much this year, up only 3% on the TSX and down around 2% on the Nasdaq. This note looks at why we think the stock has been muted this year and why we think it continues to be a compelling name within our coverage universe by contrasting the short-versus-long-term performance in the stock price.”

Tse says there is much to like about Canada’s largest software company.

“Investors following our research will know we currently like OpenText – we see an undervalued stock that’s not pricing in the underlying fundamentals that’s underscored by scaling operating cash flow towards $1 billion by 2020,” the analyst explains. “If that weren’t enough, we think there’s been a growing relative valuation gap in light of what we believe to be a compelling fundamental outlook not to mention the defensive attributes that come with recurring cash flow.”

Tse thinks Open Text will generate EBITDA of $997-million on revenue of $2.81-billion in fiscal 2018. He expects those numbers will improve to EBITDA of $1.11-billion on a topline of $3.07-billion the following year.

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About The Author /

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.
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