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Surging Earnings Estimates Signal Upside for Open Text (OTEX) Stock

Zacks

Investors might want to bet on Open Text (OTEX), as earnings estimates for this company have been showing solid improvement lately. The stock has already gained solid short-term price momentum, and this trend might continue with its still improving earnings outlook.

The rising trend in estimate revisions, which is a result of growing analyst optimism on the earnings prospects of this software provider, should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Our stock rating tool — the Zacks Rank — is principally built on this insight.

The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.

Consensus earnings estimates for the next quarter and full year have moved considerably higher for Open Text, as there has been strong agreement among the covering analysts in raising estimates.


The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:

12 Month EPS

Current-Quarter Estimate Revisions

The earnings estimate of $0.72 per share for the current quarter represents a change of 0% from the number reported a year ago.

The Zacks Consensus Estimate for Open Text has increased 57.45% over the last 30 days, as one estimate has gone higher while one has gone lower.

Current-Year Estimate Revisions

For the full year, the company is expected to earn $2.76 per share, representing a year-over-year change of +7.81%.

There has been an encouraging trend in estimate revisions for the current year as well. Over the past month, two estimates have moved up for Open Text versus no negative revisions. This has pushed the consensus estimate 38.92% higher.

Favorable Zacks Rank

Thanks to promising estimate revisions, Open Text currently carries a Zacks Rank #2 (Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

Investors have been betting on Open Text because of its solid estimate revisions, as evident from the stock’s 5.8% gain over the past four weeks. As its earnings growth prospects might push the stock higher, you may consider adding it to your portfolio right away.


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