Friday, February 03, 2012

Open Text on fire after fabulous quarter

Not all the hubbub coming out of Waterloo, Ontario is negative these days. The latest story of the week involving Research In Motion (T.RIM) usually concerns itself with the Blackberry maker's bottom line or its losing market share to Apple Inc. or even rumours of its impending buyout by a much larger competitor.

But one of its neighbours, Open Text Corporation (T.OTC), managed to grab the spotlight for bright, positive reasons, announcing it had been recognized by the The Financial Post's 10 Best Companies to Work For in 2012. This special designation recognizes fast-growing companies in Canada that offer strong career advancement opportunities along with leading-edge employee programs.

Also this week, OTC had other reasons to shout, with a fabulous financial report that topped industry expectations. On Wednesday, out came the news that the company posted record quarterly revenue of $321.5 million U.S., up 20% from a year earlier, and profit that climbed to $47.4 million from $37.1 million a year earlier.

A new CEO, Mark Barrenechea, took the reins on January 2, and announced to all who would listen that Open Text is well positioned to take business from IBM Corp.and from EMC Corporation.

Barrenechea also said the company would seek growth by going after U.S. federal contracts, more customers in the manufacturing sector and more overseas business, in Japan, Brazil, Russia, India and China.

Moreover, the new top dog has indicated his company is seeking closer ties with Oracle Inc., leading to hints Larry Ellison's behemoth could be a suitor for OTC. Barrenechea has called the relationship with Oracle "an untapped opportunity". Other possible acquirers swirling through the rumour mill have included the likes of Microsoft and SAP AG.

Canaccord Genuity analysts are bullish on the stock, giving it a $70 price target. The shares trade at just 11 times estimated earnings, compared with an average multiple of 17 for comparable software companies.

In any case, the stock screamed higher Thursday by 15%, well over the $62.00 mark, before settling at $60.34. OTC closed Friday at $60.37, three cents higher.

The stock price's 52-week high was $69.15, set last July (giving it lots of room to grow), compared to a trough of $46.10 in mid-August. With all the momentum behind the company from the last few weeks, the future appears so bright, as the song used to go, OTC may need shades! As always, before buying or selling any stock, proper due diligence is encouraged.