OTEX stock has big upside, says National Bank

After attending the company’s annual user conference National Bank Financial analyst Richard Tse remains bullish on Open Text (Open Text Stock Quote, Chart, News, Analysts, Financials Nasdaq:OTEX).

The analyst says the key takeaways from OpenText World 2023 were AI, where the company unveiled its Aviator product line, OpenText’s “important” supporting data role, and the integration of its MicroFocus acquisition.

“We had the opportunity to attend OpenText’s annual user conference (OpenText World 2023) last week,” he said. “This was the first full in-person event since the pandemic, drawing over 2,000 attendees. In addition to a dedicated product line review with investors and analysts, we had a chance to (re) connect with customers and partners while sitting in on various product / strategy sessions alongside that same group. Overall, OpenText made a number of product announcements related to AI and the event offered us the opportunity to conduct diligence around MicroFocus as there were many former MicroFocus employees, customers and partners at the event. With respect to the main conference theme of AI, while OpenText has an incredibly ambitious plan around this market with its newly unveiled Aviator product line, we think it’s too early to ascribe any potential contribution to the outlook as we’ll explain below. That said, with the Company continuing to execute on its sizable MicroFocus acquisition, Aviator presents an attractive option on growth.”

In a research update to clients October 16, Tse maintained his “Outperform” rating and one-year price target of (US) $60.00 on OTEX, implying a return of 77 per cent at the time of publication.

The analyst thinks OTEX will post Adjusted EBITDA of $2.19-billion on revenue of $5.91-billion in fiscal 2024. He expects those numbers will improve to EBITDA of $2.32-billion a topline of $6.06-billion the following year.

“In the short term, we think OTEX’s stock price performance will continue to be (primarily) driven by the Company’s execution around its MicroFocus acquisition,” the analyst concluded. “What we heard continued to support our investment thesis on that execution, and from a valuation standpoint, at 8.4x F24 EV/EBITDA, OTEX looks compelling against the Company’s relative growth potential with delevering benefiting the equity holder.