Last Update 16 Dec 25

Fair value Increased 13%

OTEX: AI Expansion And Margin Execution Will Drive Balanced Risk Reward Outlook

The analyst price target for OpenText has increased to $35 from $31, as analysts factor in recent target hikes across the Street that reflect improved profit margin expectations and a slightly lower forward valuation multiple, despite modestly softer growth assumptions.

Analyst Commentary

Recent Street research reflects a more balanced tone on OpenText, with higher price targets tempered by a clear emphasis on execution and growth risks. Bearish analysts have used the recent rally in the shares to reset expectations and highlight potential downside if management underdelivers on its margin and growth roadmap.

Several firms have nudged targets higher in connection with quarterly previews and earnings updates, but ratings have largely remained in the Hold or Neutral range. This suggests that, while the fundamental story is viewed as improving at the margin, many on the Street are not yet prepared to endorse a higher risk profile or a sustained re rating in the absence of more consistent top line momentum.

Some targets in the high 30s to $40 range now sit above the current consensus, yet they are paired with more cautious stances on the stock, underscoring the view that valuation is increasingly dependent on precise execution. The maintenance of Equal Weight and Neutral ratings, even alongside target hikes, points to lingering skepticism around the durability of demand trends and the pace of operating leverage.

Bearish analysts also flagged that the company outlook for upcoming quarters includes softer revenue and EBITDA expectations relative to prior Street models. While management has characterized this as seasonality driven and reaffirmed longer term guidance, the more conservative near term assumptions signal lingering concerns about the timing and strength of any acceleration in the back half of the fiscal period.

Downgrade activity, including a move from a Buy to a Hold rating despite a higher price target, illustrates how some investors are being encouraged to lock in gains and adopt a wait and see stance. In these cases, target increases appear to reflect model updates rather than a more constructive view on risk reward, keeping the focus squarely on whether OpenText can deliver against its multi year guidance.

Bearish Takeaways

Bearish analysts view the recent share price strength as leaving less room for error, arguing that valuation already discounts a meaningful improvement in margins and growth, with limited cushion if execution stumbles.
The prevalence of Hold and Neutral ratings, even alongside higher targets, highlights concerns that near term revenue softness and modest EBITDA outlooks could pressure the stock if seasonal explanations fail to materialize into a stronger second half.
Downgrades from more positive ratings signal a shift toward capital preservation, as some see risk reward turning less favorable amid questions about the sustainability of demand and the pace of integration and cost discipline.
Cautious price target revisions, framed within broader software sector previews, emphasize that OpenText may struggle to outperform peers if channel checks remain only "ok, but not stellar," reinforcing worries about relative growth and competitive positioning.

What's in the News

Unveiled the OpenText AI Data Platform to provide secure, scalable enterprise AI on contextual, governed data, with Aviator supporting multi cloud, multi model, and multi application deployments, including deeper integrations with partners such as SAP, Microsoft, Google, Salesforce, Oracle, and Databricks (Product Related Announcements).
Released Cloud Editions 25.4, adding industry specific AI in Context capabilities and new Aviator features to discover hidden data, enrich it with business context, and secure information with advanced privacy, governance, and cyber resilience services (Product Related Announcements).
Launched new AI powered cybersecurity capabilities in OpenText Cybersecurity Cloud, including Core Threat Detection and Response, Core Identity Foundation, Application Security Aviator, and advanced data privacy and protection to strengthen compliance and reduce threat response times (Product Related Announcements).
Announced that OpenText Core Content Management for SAP is certified for SAP S 4HANA Cloud Public Edition, extending its role as an SAP Solution Extensions partner to help customers unify content and SAP Cloud ERP data for AI ready, compliant processes (Client Announcements).
Named former BlackBerry executive Steve Rai as Chief Financial Officer, adding more than three decades of global finance experience as OpenText navigates its AI and cloud transformation agenda (Executive Changes).

Valuation Changes

The fair value estimate has risen modestly, increasing from $31.00 to $35.00 per share. This reflects higher margin expectations despite softer growth assumptions.
The discount rate has edged up slightly, moving from 9.86 percent to roughly 9.93 percent. This implies a marginally higher required return and risk premium.
Revenue growth has been reduced slightly, with long-term assumptions trimmed from about 1.46 percent to approximately 1.35 percent. This signals a more conservative top-line outlook.
The net profit margin has risen meaningfully, improving from around 16.46 percent to about 18.20 percent. This indicates expectations for stronger operating leverage and cost discipline.
The future P/E multiple has declined modestly, easing from roughly 10.7x to about 10.1x. This suggests a slightly lower valuation multiple applied to forward earnings.

Persistent weakness in legacy products, modest cloud growth, and intense price competition threaten long-term revenue and margin expansion.
Heavy dependence on acquisitions and pressures from regulatory, technological, and hyperscaler shifts heighten operational and strategic risks.
Strong cloud and AI growth, high renewal rates, strategic partnerships, cost optimizations, and enhanced capital returns position the company for durable revenue and increased shareholder value.

Catalysts

About Open Text

Engages in the provision of information management products and services.What are the underlying business or industry changes driving this perspective?

The accelerating customer migration to cloud and SaaS solutions continues to undermine demand for Open Text's legacy on-premises products. Cloud revenue grew only 2% last year, and although guided to 3% to 4% organic growth, this modest pace reflects persistent weakness in the legacy business, pressuring total revenue and dampening long-term growth potential.
The company faces rising compliance costs and operational risk stemming from increasingly strict cybersecurity and data privacy regulations worldwide. While these environments can spur some demand, they also significantly raise operational complexity and threaten net margin expansion, especially with growing legal exposure across geographies.
Ongoing price competition from open-source and low-cost alternatives in information management intensifies, risking further margin compression as Open Text must compete aggressively on price to retain and attract customers. The modest cloud growth, flat business network revenues, and last year's negative 4% growth in cyber cloud highlight pressure on both revenue and profitability.
Heavy reliance on large-scale acquisitions for growth exposes the company to integration risks, increasing debt loads, and potential impairments. Although M&A is set to resume, previous deals like Micro Focus and Carbonite require significant modernization, and further large acquisitions may dilute earnings and reduce stability in free cash flow.
Dominance of hyperscalers like AWS, Microsoft, and Google threatens to erode Open Text's mid-market positioning as enterprise software consolidates around these platforms. Rapid AI and automation innovation could make traditional enterprise content management offerings obsolete or commoditized, strangling future revenue streams and diminishing the company's relevance and pricing power.

Open Text Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

This narrative explores a more pessimistic perspective on Open Text compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
The bearish analysts are assuming Open Text's revenue will grow by 1.5% annually over the next 3 years.
The bearish analysts assume that profit margins will increase from 8.4% today to 16.5% in 3 years time.
The bearish analysts expect earnings to reach $888.2 million (and earnings per share of $3.51) by about September 2028, up from $435.9 million today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 10.7x on those 2028 earnings, down from 20.5x today. This future PE is lower than the current PE for the CA Software industry at 36.2x.
Analysts expect the number of shares outstanding to decline by 2.93% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 9.86%, as per the Simply Wall St company report.

Open Text Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The accelerating shift to cloud, AI, and cybersecurity-supported by both secular and customer trends-is leading to rapid growth in cloud bookings (up 32% year-over-year in Q4) and a projected 3-4% cloud revenue growth in fiscal 2026, which could drive sustained revenue and ARR expansion for Open Text.
The successful divestiture of a non-core mainframe business and aggressive business optimization plan have resulted in higher adjusted EBITDA margins, with the company expecting to realize $490-$550 million in annualized savings by fiscal 2027, which could further improve profitability and expand net margins over time.
Persistent high renewal rates for both cloud (96%) and off-cloud (91%), alongside a 13% increase in total cloud RPO and a strong pipeline up 30% year-over-year, indicate durable, recurring revenue streams that de-risk future earnings and revenue growth.
Expansion of strategic partnerships with leading technology providers such as SAP and Microsoft and the launch of the Titanium X platform for AI and security open up new market opportunities and enhance product differentiation, supporting higher customer acquisition and top-line growth.
The company's increased capital return strategy-including a 17-20% targeted growth in free cash flow for fiscal 2026, share repurchases, and a 5% dividend raise-combined with disciplined M&A activity, suggests continued shareholder value creation through higher earnings per share and capital returns.

Valuation

How have all the factors above been brought together to estimate a fair value?

The assumed bearish price target for Open Text is $31.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Open Text's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $48.0, and the most bearish reporting a price target of just $31.0.
In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $5.4 billion, earnings will come to $888.2 million, and it would be trading on a PE ratio of 10.7x, assuming you use a discount rate of 9.9%.
Given the current share price of $35.11, the bearish analyst price target of $31.0 is 13.3% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystLowTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystLowTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystLowTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Legacy Decline And Acquisition Risks Will Shadow Future Value