Last Update 20 Jan 26

Fair value Decreased 0.68%

OTEX: AI Initiatives And Buybacks Will Support Re Rating Potential

Analysts have reduced their average price target on OpenText by about $0.30 to $40.00. This reflects a combination of recent target cuts and raises as they balance modest valuation adjustments with company guidance and recent quarterly results.

Analyst Commentary

Recent research on OpenText highlights a mix of cautious and constructive views as analysts recalibrate their targets around the $35 to $40 range and respond to the company’s latest quarterly update and guidance.

Bullish Takeaways

Bullish analysts raising targets toward $35 to $38 point to the company’s ability to deliver revenue and EPS results that are above expectations in the recent quarter, which they see as a positive signal for execution.
The maintenance of longer term guidance, including FY26 expectations, is viewed by bullish analysts as a sign that management is confident in the business plan even as near term quarters may be uneven.
Some bullish analysts frame the higher targets as a recalibration to reflect recent earnings upside, which they argue better aligns valuation with the company’s current earnings run rate.
Bullish views suggest that if the company can follow through on its guidance for a stronger performance in the back half of its fiscal period, there could be support for the current price target range.

Bearish Takeaways

Bearish analysts trimming price targets, including those moving lower by about $3, are reacting to elements of guidance that sit below prior expectations, which in their view limits upside for the shares at current levels.
The outlook for fiscal Q2 revenue and EBITDA, which is below consensus, gives cautious analysts reason to question how smooth the near term execution will be, even if management cites seasonality.
Some bearish analysts see the need to lower targets as a reminder that valuation has to reflect not only recent upside but also the risk of softer quarters, especially when forecasts rely on a stronger back half.
Cautious views emphasize that mixed quarterly guidance and target cuts from part of the analyst community can keep a cap on enthusiasm until the company shows more consistent delivery against its stated goals.

What's in the News

OpenText introduced the OpenText AI Data Platform and outlined a vision for secure, scalable enterprise AI that ties together data governance, identity access management, and its Aviator AI tools across multi cloud, multi model, and multi application environments (Product Related Announcement).
The company announced expanded work with Databricks, including planned technical integrations and Delta Sharing so joint customers can unify, govern, and analyze enterprise data for AI workloads on the OpenText AI Data Platform (Product Related Announcement).
OpenText reported that its Core Content Management for SAP solutions is now certified for SAP S/4HANA Cloud Public Edition, positioning it as an SAP Solution Extensions partner for document management integrated with SAP Cloud ERP (Client Announcement).
The company provided earnings guidance for the second quarter of fiscal 2026, indicating expected total revenue in a range of US$1.275b to US$1.295b (Corporate Guidance).
OpenText reported multiple share repurchase tranches, including US$39.11m for 1,293,472 shares and US$61.05m for 1,862,851 shares, within broader buyback programs totaling US$450m and US$61.05m respectively (Buyback Tranche Updates).

Valuation Changes

Fair Value: revised slightly from US$40.27 to US$40.00, representing a modest reset in the model’s central estimate.
Discount Rate: adjusted marginally from 10.00% to about 10.13%, which implies a slightly higher required return in the updated assumptions.
Revenue Growth: kept effectively unchanged at around 1.24% in the refreshed model inputs.
Net Profit Margin: maintained at roughly 16.17%, indicating no material change in expected profitability assumptions.
Future P/E: trimmed slightly from about 13.18x to 13.13x, reflecting a small adjustment to the earnings multiple applied.

Expanded AI integration, cloud-based solutions, and business optimization initiatives are driving higher recurring revenue, margin improvement, and robust free cash flow growth.
Strategic partnerships, strong sales pipeline, and active M&A strategy position the company for diversified growth and increased shareholder returns.
Heavy reliance on managing legacy transitions, restructuring efforts, and M&A carries risks that could pressure margins and growth amid uncertain cloud, macroeconomic, and segment-specific headwinds.

Catalysts

About Open Text

Designs, develops, markets, and sells information management software and solutions in North, Central, and South America, Europe, the Middle East, Africa, Australia, Japan, Singapore, India, and China.What are the underlying business or industry changes driving this perspective?

Accelerating customer demand for secure, cloud-based information management-driven by surging global unstructured data volumes, increased adoption of sovereign cloud, and regulatory pressures-continues to push new and existing clients towards OpenText's cloud-native and compliance-centric offerings, supporting higher recurring revenue growth and expanding forward backlog (RPO).
Expanded integration of AI and automation capabilities (e.g., Titanium X and MyAviator platforms) directly into OpenText's cloud suite is leading to higher per-customer spend and driving pipeline conversion rates, expected to fuel both top-line revenue acceleration and incremental margin improvement.
Ongoing business optimization and restructuring initiatives are expected to deliver substantial annualized cost savings (with 35% additional realized in FY26), enabling further EBITDA margin expansion and continued robust free cash flow growth.
Return to growth in key business units (notably cybersecurity and business network), some rebounding from recent softness, aided by new go-to-market partnerships with hyperscalers (like Microsoft and SAP) and vertical-focused solutions, positions OpenText for improved revenue diversification and consolidated earnings growth.
Strong and growing sales pipeline, high cloud renewal rates (96%), and the company's renewed ability to pursue accretive M&A (coupled with strategic divestitures) provide a clear path to both organic and inorganic expansion, supporting the financial outlook for steady revenue growth and enhanced shareholder returns via buybacks and dividends.

Open Text Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Open Text's revenue will grow by 1.4% annually over the next 3 years.
Analysts assume that profit margins will increase from 8.4% today to 16.0% in 3 years time.
Analysts expect earnings to reach $862.6 million (and earnings per share of $3.4) by about September 2028, up from $435.9 million today.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.4x on those 2028 earnings, down from 20.0x 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 ongoing decline in legacy maintenance revenue, despite efforts to cut the rate of decline from -4% to -2% in fiscal '26 and a target of return to growth in '27, highlights a dependency on managing legacy businesses that could drag on total revenue and net margins if cloud growth does not accelerate as projected.
The company's multi-year business optimization and restructuring plan, while driving margin expansion, involves significant restructuring costs (projected total spend of $260 million), which could introduce execution risk and temporary margin compression if anticipated annualized savings are delayed or not fully realized.
Despite a focus on cloud and AI innovation, certain key business units-specifically cybersecurity-reported negative 4% cloud revenue growth in fiscal '25, with only management's expectation (rather than clear leading indicators) that these segments will rebound; prolonged weakness in these areas could pressure overall revenue and earnings.
The reliance on M&A to supplement growth, alongside openness to further divestitures, carries risk of integration challenges, strategic distraction, and potentially increased financial leverage, which could constrain long-term net margin and earnings growth if not carefully managed or if synergies fail to materialize.
Macroeconomic and geopolitical uncertainties, including exposure to trade and tariff volatility and increased customer preference for sovereign or on-premise solutions, may slow enterprise customers' technology investment cycles and complicate sales cycles, potentially leading to revenue and free cash flow variability despite positive pipeline indicators.

Valuation

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

The analysts have a consensus price target of $34.8 for Open Text based on their expectations of its future earnings growth, profit margins and other risk factors. 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 analyst's consensus, you'd need to believe that by 2028, revenues will be $5.4 billion, earnings will come to $862.6 million, and it would be trading on a PE ratio of 12.4x, assuming you use a discount rate of 9.9%.
Given the current share price of $34.22, the analyst price target of $34.8 is 1.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
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

AnalystConsensusTarget 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 AnalystConsensusTarget 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 AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

OTEX: AI Initiatives And New Leadership Will Drive Balanced Future Prospects