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Citi cuts Open Text price target to $33 from $34, keeps neutral

EditorLina Guerrero
Published 10/31/2024, 04:17 PM
OTEX
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On Thursday, Citi revised its outlook on Open Text (NASDAQ:OTEX) Corporation (NASDAQ:OTEX), reducing the stock's price target to $33 from the previous $34 while maintaining a Neutral rating. The adjustment follows Open Text's reported first-quarter results, which presented mixed outcomes. The company's growth metrics fell short of expectations, with revenue, billings, and bookings all underperforming. Specifically, Open Text experienced a decline in organic growth year-over-year by 1.6%, missing consensus estimates due to lower-than-expected results in its Cloud and Professional Services segments.

The Cloud segment reported a $6 million shortfall, while Professional Services missed by $7 million. Furthermore, the annual growth rate for Cloud bookings stood at 10%, significantly trailing the company's full-year target of 25%. Open Text's guidance for second-quarter revenue was set at $62 million, falling below consensus expectations. This projection is partly attributed to more challenging comparisons and timing issues.

Despite the underwhelming second-quarter revenue guidance, Open Text has opted to maintain its full-year guidance. The company anticipates a stronger performance in the second half of the year, bolstered by upcoming product releases, go-to-market (GTM) investments, and leadership changes. Citi's stance remains cautious, awaiting signs of more consistent execution and a return to sustainable year-over-year growth before altering their rating. The firm reiterated its Neutral stance on the stock while adjusting the target price downward to reflect the recent earnings report and future expectations.

In other recent news, OpenText Corporation reported robust Q1 results, with a 10% year-over-year increase in enterprise cloud bookings. The company announced revenue of $1.27 billion and adjusted EPS of $0.93, both surpassing expectations. The company's adjusted EBITDA margin grew to 35%, and it plans to continue share buybacks, having repurchased 7.72 million shares. OpenText anticipates a strong second half of the fiscal year, driven by the Titanium X platform, investments in sales, and enhanced partnerships.

The company's fiscal 2025 targets include total revenues of $5.3 billion to $5.4 billion, a 33% to 34% adjusted EBITDA margin, and free cash flow of $575 million to $625 million. Despite strong cloud bookings, the company's overall revenue growth was down compared to the previous year. However, OpenText is targeting a 25% increase in cloud bookings and expects overall revenue growth of 2% to 5%. The company also plans to return approximately $570 million to shareholders and remains open to M&A opportunities.

InvestingPro Insights

While Citi's outlook on Open Text Corporation (NASDAQ:OTEX) remains cautious, InvestingPro data provides additional context to the company's financial position. Despite the recent challenges in revenue growth, OTEX maintains a strong gross profit margin of 76.87% for the last twelve months as of Q4 2024, highlighting its operational efficiency. This aligns with one of the InvestingPro Tips, which notes the company's "impressive gross profit margins."

Additionally, OTEX's dividend performance stands out. The company has raised its dividend for 11 consecutive years and maintained payments for 12 years, as per InvestingPro Tips. With a current dividend yield of 3.11%, OTEX may appeal to income-focused investors despite its recent growth challenges.

It's worth noting that analysts predict the company will remain profitable this year, which could provide some reassurance to investors concerned about the recent revenue miss. For a more comprehensive analysis, InvestingPro offers 5 additional tips on OTEX, providing deeper insights into the company's financial health and market position.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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