Open Text Corporation

Open Text Corporation (OTEX - Snapshot Report) is seeing strong demand for its compliance software solutions as revenue jumped 11% in the third quarter. The company is growing through acquisitions, as it just completed a merger with Captaris, Inc., a privately-held software provider. OTEX trades at 11x forward earnings.

Company Description

Open Text provides Enterprise Content Management (ECM) solutions to 46,000 customers in 114 countries. The company provides management through archiving, digital management, web content management, email, litigation management, compliance, and record management.

Open Text's prime product is Livelink, collaboration and content management software. It offers consulting and hosting services alongside the software.

On Oct 31, the company completed a merger with privately-held Captaris, Inc., a provider of software products that automate document-centric processes.

"Captaris strengthens our position as the ECM market's independent leader and broadens the suite of solutions we offer that integrate with SAP, Microsoft and Oracle, our three strategic partners," said John Shackleton, President and Chief Executive Officer.

Revenue Rose 11% in the Third Quarter

On Nov 3, Open Text reported third-quarter earnings that beat Wall Street estimates by 10.42%. Net income jumped 28% to $28.2 million, or 53 cents, compared to $22.1 million, or 43 cents in the year ago period. Analysts expected 48 cents.

Revenue jumped 11% to $182.6 million from $164 million in the third quarter of 2007 on demand for compliance solutions.

The company has liquidity- with total cash and cash equivalents as of Sep 30, 2008 of $250.1 million up from $150.3 million as of Sep 30, 2007.

Consensus Estimates Rise

The company offered no guidance for the fourth-quarter or 2008 but covering analysts are bullish. 2008 full-year estimates rose 14 cents to $2.25 in the last 60 days.

2009 consensus estimates are unchanged at $2.78 for the last 30 days. Analysts expect 2009 year over year earnings growth of 23.83%.

Value Fundamentals

Open Text is a Zacks #1 Rank (strong buy) stock. It has surprised on estimates 4 consecutive quarters by an average of 9.71%.

OTEX is trading at 11x forward earnings. Its price-to-book is 2.25. The company has a solid 5-year average return on equity (ROE) of 13.20%.