Open Text: Analysts Boost Targets on Budding Prospects for Organic Growth

Software provider Open Text Corp. (OTEX) saw its shares soar on Friday, climbing 24%, or C$5.13, to C$26.55 at 2 p.m. ET, to lead the market in Toronto, after the company’s fourth quarter earnings blew past analyst estimates.

A handful of analysts who cover the stock hiked their price targets, including Blackmont Capital’s Lawrence Rhee, who expects the shares will rise to US$28, up from US$25.50 previously.

Mr. Rhee also noted that investors and analysts will likely be pleased by Open Text’s decision to provide some guidance, after being criticized for not doing so in the past.

Justin Kew at Versant Partners, who also has a “buy” on the stock, hiked his price target by US$1.50 to US$28. He recommended that clients be aggressive buyers at current levels.

Mike Abramsky at RBC Capital Markets reiterated his “outperform” rating and US$28 price target.

Steven Li at Raymond James also has an “outperform” rating on Open Text and raised his target by C$3 to C$31. Given that the company’s accounting concerns are fading and prospects for organic growth are looking up, he thinks the shares should rebound.

Finally, Peter Misek at Canaccord Adams warns that although the quarter exceeded expectations, his concerns have not disappeared. He thinks cash flow from operations fell short of the Street’s expectations, while distractions from the merger with Hummingbird Ltd. may have reduced the number of deals in the second and third quarters, thus providing a boost to this past quarter.

He maintained his “hold” recommendation and placed his target price (previously US$18) under review.