On Tuesday, Jefferies initiated coverage on Open Text (NASDAQ:OTEX) Corporation (NASDAQ:OTEX) by assigning the stock a Buy rating and establishing a price target of $45.00. The firm anticipates that Open Text will achieve low single-digit organic revenue growth and incremental margin expansion. These factors are expected to contribute to the scaling of free cash flow to over $1.25 billion by the fiscal year 2026.
Jefferies' outlook for Open Text includes the successful integration of Micro Focus and the divestiture of the AMC business as key steps towards achieving the mentioned financial targets. The firm suggests that these strategic moves will play a significant role in Open Text's growth trajectory.
The analyst from Jefferies highlighted Open Text's position as a prominent provider of information management solutions for large enterprises. The firm's expectation is based on the company's ability to deliver consistent growth and margin improvement over the next few years.
The coverage notes that Open Text is currently valued at a discount compared to its peers, trading at 14 times the calendar year 2025 estimated free cash flow versus the 16 times average of its peers. Jefferies predicts that as Open Text's solid fundamental picture becomes more apparent, this valuation gap should narrow.
In conclusion, Jefferies' positive stance on Open Text reflects confidence in the company's future performance, supported by strategic business decisions and a strong fundamental outlook. The firm's price target of $45.00 suggests a potential upside from the current trading levels, based on the anticipated financial growth and narrowing of the valuation discount relative to industry counterparts.
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