OpenText gets price target raised to $46.00 at Beacon Securities

On the strength of its latest quarter, Beacon Securities analyst Gabriel Leung is upping his target price for Canadian tech company OpenText (OpenText Stock Quote, Chart TSX, NASDAQ:OTEX), saying in a Monday client update that OTEX is poised for continued growth, both organically and by acquisitions.

Waterloo, Ontario’s OpenText reported its fiscal third quarter 2019 financials on May 1, coming in with total revenues of $719 million, a five-per-cent uptick year-over-year, Adjusted EBITDA of $261.8 million, up from $227.6 million a year ago, and Adjusted EPS of $0.64 per share. (All figures in US dollars.)

“We had solid business execution during the quarter, with a focus on growing margins and cash flows,” said CFO and EVP Madhu Ranganathan, in a press release. “We generated operating cash flows of $286 million, an increase of 6 per cent from the prior year, while integrating two acquisitions during the quarter. The results reflect continued strength of our operational focus.”

Leung says the results were slightly better than expected, where he had forecasted revenue and adjusted EPS of $709 million and $0.62 per share, respectively. He notes that management is continuing to target 36 to 38 per cent EBITDA margins for fiscal 2019 (ending June 2019). He also notes that the company says it does not expect the same seasonal uplift in Q4 that it had in Q3, although it still is calling for positive growth.

“We believe the company remains well positioned to continue to grow organically and via acquisitions (note its low leverage ratio). We also view its large recurring revenue base as providing good downside investor protection,” says Leung.

“Bottom-line, we believe the company continues to do a good job managing (profitably) the evolution of its Enterprise Information Management platform (as highlighted by its fiscal Q3 results, which is a seasonally slower period), which now includes Information Security, IoT and AI capabilities,” he says.

Leung’s forecast calls for fiscal 2019 revenue and EBITDA of $2,873 million and $1,101 million, respectively, and fiscal 2020 revenue and EBITDA of $3,007 million and $1,179 million, respectively.

The analyst is reiterating his “Buy” rating and raising his target from (US) $44.00 to $46.00, which represents a projected return of 14 per cent at the time of publication.