Canada's largest software company Open Text Corp has strong prospects for growth partly due to its solid pipeline, analysts said, and raised their price target on the stock, a day after it posted a jump in quarterly profit.
At least five brokerages, including RBC Capital Markets and CIBC World Markets, lifted their share-price targets on Open Text, while GMP Securities upgraded the stock to buy from hold.
What's interesting is that the pipeline includes a growing number of new customers, setting the stage for a continuation of large deployments over the next 24 months, GMP analyst Sera King wrote in a note to clients.
Open Text is poised to grow as a result of its solid pipeline, broad-based strength across all geographies, and continued traction with strategic partners including Germany's SAP AG, Microsoft Corp and Oracle Corp, King said.
In a separate report, CIBC analyst Stephanie Price said she sees continued license revenue growth as the company cross-sells products from recent acquisitions and increases traction with key partners.
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CIBC's Price expects margins to return to the management's target range and move higher over time, as the company continues to gain scale, both organically and through acquisitions.
While the Waterloo, Ontario-based company posted a higher quarterly profit, it missed analysts' expectations, prompting at least one brokerage to cut its rating on the stock and another to cut its price target.
Benchmark Securities downgraded Open Text to sell from hold, saying the stock is likely to fall over the coming weeks as investors digest the managements' subtle strategy shift from cost containment and margin expansion to revenue growth and increased business investment.
This strategy shift is likely to result in lower operating margins and earnings growth in the short-term until organic revenue growth accelerates from the increased business investment, Benchmark analyst Mark Schappel said.
Open Text shares were trading up about 1 percent at C$61.46 on the Toronto Stock Exchange on Thursday morning, while its Nasdaq-listed shares were trading at $64.75.
The table below lists the price target changes on Open Text:
(Reporting by Isheeta Sanghi in Bangalore; Editing by Roshni Menon)