by Zacks Equity ResearchAugust 24, 2012 | Comments : 0 Recommended this article: (0)
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Information Management Software provider Open Text Corp. ( OTEX - Snapshot Report ) is an attractive pick for value investors. This Zacks #1 Rank (Strong Buy) is expected to benefit from the strong growth opportunities in its core end-market, as well as its innovative product pipeline, recurring maintenance revenue and accretive acquisitions.
Moreover, the stock is significantly undervalued, with a forward price-to-earnings (P/E) multiple of just 10.3 and low price-to-book (P/B) multiple of 2.69.
Outlook Remains Bright
Open Text reported fourth quarter 2012 results on August 9, with earnings of 87 cents per share missing the Zacks Consensus Estimate However, revenue increased 7% from the prior-year quarter to $305.6 million, driven by solid maintenance (up 8.1% year over year) and services revenue (up 17.3% year over year). This fully offset a 2% year over year decline in license revenue.
Although Open Text did not provide a specific guidance, the company expects its top-line to get a boost from the strong growth in the enterprise information management market (from $13.0 billion in 2012 to $19.0 billion by 2016). Furthermore, the recently completed acquisition of Atlanta-based EasyLink is expected to expand Open Texts cloud-based product offerings going forward.
Earnings Estimates Moving Up
For 2013, the Zacks Consensus Estimate jumped 6.0% in the last 30 days to $5.29, representing a 31.3% year-over-year growth. For 2014, the Zacks Consensus Estimate stands at $5.58, or a growth 5.5% year-over-year.
In addition to low P/E and P/B multiples, the stock looks attractive even on a price-to-sales (P/S) basis. Its P/S multiple is just 2.69, much lower than the industry average of 4.13. Moreover, Open Texts PEG ratio of just 0.88 indicates that the stock is reasonably valued given the expected growth of 11.7%.
Waterloo, Ontario-based Open Text Corp. was incorporated in 1991. Open Text develops software solutions that help enterprises to effectively organize and manage information. Its products primarily cater to the Enterprise Information Management (EIM) market. The company has a market cap of $3.17 billion and it competes with IBM (IBM), EMC Corp. (EMC) and Hewlett-Packard Co. (HPQ).
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