Now’s not the time to buy OpenText, National Bank says

OpenText (Open Text Corp Stock Quote, Chart, News, Analysts, Financials TSX:OTEX) may have met expectations in its latest quarter, but National Bank of Canada analyst Richard Tse says the real story is a cautious reset in guidance that signals it’s still early days in the company’s turnaround.

Tse is maintaining his “Sector Perform” rating and 12-month price target of US$34.00 for the stock.

The rating and target were unchanged following OpenText’s third-quarter earnings release on May 1, which met expectations but included a reduced full-year revenue and cloud growth forecast. The company cited ongoing macroeconomic uncertainty, including potential impacts from tariffs, as a factor in its more cautious guidance. Tse acknowledged the in-line results but noted that the new guidance reset expectations.

Tse believes OpenText’s valuation is now low enough to provide some support, even though signs of a turnaround have yet to emerge. He highlights that the company’s cost-cutting efforts and restructuring program are laying the groundwork for potential margin improvement and increased free cash flow.

“With respect to total revenue, OpenText revised its FY25 guidance to a range of $5.10 – 5.17 billion (from $5.17 to $5.27), though the Company maintained its adjusted EBITDA and free cash flow outlook given continued execution on efficiency measures, which should continue under an expanded restructuring program in a pivot towards AI,” Tse said in a May 1 update. “The total program will impact 2,000 (net) positions (~10% of workforce) and is expected to generate between $490 – 550 million in total annualized cost savings by FY27.”

Tse said he believes the stock will remain range-bound in the near term as the company executes on its cost improvements.

“We like the move by the Company’s actions to simplify the narrative for investors while taking action to preserve operating leverage,” he said. “That said, in light of the track record in recent years, we think it’s too early to call an inflection in the business. Nevertheless, at 6.4x EV/EBITDA on FY26E, we think there’s valuation support in the name which balances the risk-to-reward.”

Tse thinks that Open Text will generate $1,740.8 million in adjusted EBITDA on $5,122.6 million in revenue in fiscal 2025. He expects those figures to improve to $1,908.1 million in adjusted EBITDA on $5,209.4 million in revenue in fiscal 2026.

Founded in 1991 and headquartered in Waterloo, Ont., OpenText is Canada’s largest enterprise software company. It operates in enterprise information management, providing tools that help individuals, teams, and organizations store, share, and manage documents, emails, and tasks. The company employs 24,000 people and serves around 100,000 customers worldwide.

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