He’s still not fully on board, but Citi analyst Steven Enders says there are some things to like about Open Text (Open Text Stock Quote, Chart, News, Analysts Financials NASDAQ:OTEX).
In a research update to clients February 2, the analyst raised his price target on OTEX from (US) $38.00 to $44.00 but maintained his “Neutral” rating on the stock.
On February 1, OTEX reported its Q2, 2024 results. The company posted Adjusted EBITDA of $566-million on revenue of $1.54-billion, a topline that was up 71 per cent over the same period a year prior.
“OpenText demonstrated remarkable performance in the second quarter achieving record total revenues of $1.535 billion, up 71% year-over-year,” CEO Mark J. Barrenechea said. “Driven by increased cloud demand, we saw record quarterly enterprise cloud bookings of $236 million, up 63% year-over year, led by continued strong enterprise content, Micro Focus cloud contribution and customers beginning their AI journey. With continued strength in our enterprise cloud businesses and our new Aviator ™ AI products, we are raising our Cloud Booking outlook to 25% to 30% growth this year.”
The analyst tackled the results from both perspectives.
“The Bulls will point to large deal strength, strong cloud bookings & raised full-year cloud bookings guide, and healthy MFGP performance with line-of-sight to improving organic growth and cash generation,” Enders wrote. “The Bears will point to FY EBITDA guide down and growth downticks for Pro Services and License, lack of Cloud rev bump up despite the strong bookings, along with continued SMB impacts.”
The analyst said it will take some time for OTEX to digest its recent acquisition.
“We see OpenText’s recently closed acquisition of Micro Focus likely remaining an overhang on the stock until OpenText is able to make changes to Micro Focus’ operations and executing the Open Text playbook to drive better renewals and leverage,” he concluded. “Yet, we believe the acquisition and Micro Focus’ declining revenue base will likely remain a point of focus until the acquisition closes in CY23 and distract from OpenText’s cloud and MSP investments until Micro Focus potentially returns to growth in CY24 from OpenText investments. While we believe the acquisition could ultimately prove successful, we see a challenging narrative until OpenText’s strategy can begin to take shape which we expect will take more than a year to play out.”
At press time, shares of OTEX on the NASDAQ were down 6.94 per cent to $41.03.
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