Open Text upgraded at Scotia Capital

Scotia Capital analyst Kevin Krishnaratne upgraded Open Text (Open Text Stock Quote, Chart, News, Analysts, Financials NASDAQ:OTEX) to “Sector Outperform” from “Sector Perform,” pointing to stronger conviction in the company’s Content Management business, which contributes about 40% of revenue and which he views as “an underappreciated asset.”

As reported by the Globe and Mail, he also raised his target price for the shares to US$50 from US$35, above the Street average of US$36.84.

“We see a business operating at a ‘Rule-of-40′ revenue growth/Adjusted EBITDA margin profile with all the elements to push towards ‘Rule-of-50′ in time given OTEX’s unique position as a centralized system of record for all content generated within leading applications (SAP, Salesforce, Microsoft),” he said. “While we’re not calling OTEX an AI company, we think it is going to be a strong beneficiary of the technology with its Aviator tools enabling enterprises to drive business productivity … leveraging the company’s decades-long history of organizing unstructured data in a protected environment.”

The analyst noted Content Cloud revenue grew 17% in fiscal 2025, largely tied to AI readiness initiatives.

Krishnaratne said Open Text is “growing by shrinking” as it simplifies its story. He sees several near-term catalysts to support a re-rating, including planned divestitures of non-core assets—SMB Cybersecurity, ADM/DevOps and Analytics—representing $1.2-billion of the company’s $5.2-billion revenue base in fiscal 2025.

He estimates sales could generate $2.4-billion in proceeds and reduce leverage from 2.9 times to 2.0 times on a pro forma basis, exposing stronger underlying performance. On the core business, a reported 3% organic revenue decline in fiscal 2025 is closer to 0.9% after adjusting for divestitures, with Cloud growth of 5.8% versus the reported 1.9%.

Leadership changes are also expected to support growth, with a refreshed board, a new CEO likely bringing sales experience, and a new CFO. In addition, Krishnaratne pointed to a refined M&A strategy, focused on tuck-in deals to deepen Open Text’s lead in Content Management by expanding geographically or across industry verticals.

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