Analyst ReactionsTook advantage of today's weakness to initiate a position. GLTA
While acknowledging Open Text Corp.’s second-quarter 2024 results had some “food for bears,” including a billings miss and EBITDA margin tightening, Citi analyst Steven Enders viewed the release as “solid” and “encouraging.”
After the bell on Thursday, the Waterloo, Ont.-based enterprise information management software reported revenue of US$1.535-billion, up 71 per cent year-over-year and above the Street’s expectation of US$1.503-billion driven by a 58-per-cent rise in annual recurring revenues and gains in its License business. Earnings per share of US$1.24 was 4 US cents above the consensus forecast.
“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,” said Mr. Enders.
“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.”
With the results and largely unchanged full-year guidance, he raised his revenue and earnings forecast for fiscal 2024 and 2025, leading him to increase his target for Open Text shares to US$44 from US$38 with a “neutral” rating. The average is US$50.58.
“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.”
Elsewhere, others making changes include:
* BMO’s Thanos Moschopoulos to US$50 from US$48 with an “outperform” rating.
“We remain Outperform on OTEX following Q2/24 results, which were a beat on the quarter, while Q3/24 EBITDA guidance was well below consensus, and the top end of FY2024 margin guidance was reduced,” said Mr. Thanos Moschopoulos. “Cloud bookings were strong, as was cash flow, and MCRO revenue was above our model. We’ve reduced our FY24/25 EBITDA estimates; however, our revised FY2025 EBITDA is now roughly consistent with prior consensus. We view the stock’s valuation as compelling based on our view that OTEX will be successful in returning to consolidated year-over-year organic growth.”
* TD Securities’ Daniel Chan to US$54 from US$53 with a “buy” rating.