Mitsubishi UFG Securities Initiates Open Text At Overweight

Mitsubishi UFG Securities has started coverage of Open Text Corp (USA) (NASDAQ: OTEX) with an Overweight rating and a price target of $74, implying an upside potential of 15 percent from current levels.

Open Text provides Enterprise Information Management (EIM) software and business process management solutions for analyzing, automating, optimizing and monitoring business processes.

The brokerage noted that Open Text consolidated its leadership position within the EIM marketplace and has been successful growing the company both organically and through acquisitions.

Related Link: BMO Upgrades Open Text To Outperform, EMC Deal Could Lead To Significant Synergies

In addition, the company is one of the early movers in to cloud, which the brokerage considers as a key strength of the company. The company has been actively transitioning and acquiring cloud-facing products.

“We believe that the company will continue to fuel top- and bottom-line growth through targeted acquisitions, a transition to the cloud, and entry into new adjacent market verticals,” analyst Stephen Bersey wrote in a note.

Bersey expects FY17 non-GAAP EPS growth at 15 percent to $4.07 and revenue growth at 16 percent to $2.12 billion.

On the valuation front, the analyst noted that OTEX’s shares are trading at a FY18 PEG ratio of 1.52x, or a 20 percent discount to the design and tools peer group average PEG multiple of 1.91x.

The $74 price target is based on a PEG ratio of 1.75x his FY18 EPS estimate of $4.33 and five-year earnings CAGR estimate of 10 percent.

Shares of Open Text closed Thursday’s regular trading at $64.40.

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