CGI Inc.: Earnings Should Grow 8% Next Year

Last quarter’s 4.4% revenue gain beat market expectations as CGI’s “Build and Buy” strategy continues to drive expansion through strategic acquisitions and new contract wins. A substantial backlog, book-to-bill ratio and growing workforce are all healthy signs that current growth is likely to continue for the foreseeable future.

What’s more, new partnerships, including a State of Iowa contract, also demonstrate continued success in public sector engagement.

Meanwhile, the stock trades at an attractive 18.8 times CGI’s forward earnings forecast as the company began paying its first dividend.

CGI INC. (Toronto symbol GIB.A) lets investors tap Canada’s largest provider of computer outsourcing services. It helps its clients automate certain routine functions like accounting and buying supplies. That makes companies more efficient and lets them focus on their main businesses.

CGI’s strong reputation continues to help it secure new contracts.

For example, the State of Iowa announced that it would use the company’s CGI Advantage software to help manage its budgeting and related functions.

CGI has not yet said how much this new contact is worth. However, it builds on a 30-year relationship with this client.

And CGI fuels its continued growth with a “Build and Buy” strategy.

The “Build” part refers to the expansion of its current client relationships and the development of new ones. The “Buy” part involves making acquisitions.

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Under the Buy part of that strategy, CGI recently paid $317.8 million for Aeyon LLC. Based in Virginia, this firm helps agencies of the U.S. federal government, including the branches of the military, the Federal Aviation Administration and the National Aeronautics and Space Administration, manage their data networks.

CGI is also buying Daugherty, a St. Louis-based professional services firm. The deal will add over 1,100 consultants to CGI’s workforce and strengthen its presence in key U.S. markets including St. Louis, Atlanta, Minneapolis, Chicago, Columbus, Dallas and New York.

Growth Stocks: Revenues and earnings rise to beat estimates too

Thanks to acquisitions and new contract wins, CGI’s revenue in its fiscal 2024 fourth quarter, ended September 30, 2024, rose 4.4%, to $3.66 billion from $3.51 billion a year earlier. That topped the consensus forecast of $3.61 billion. If you factor out the benefit from currency rates, revenue rose 2.0% in the quarter.

If you exclude costs related to acquisitions and other unusual items, overall earnings in the quarter rose 4.2%, to $439.1 million from $421.2 million. Due to fewer shares outstanding, earnings per share improved 7.3%, to $1.92 from $1.79. That also beat the consensus estimate of $1.91.

CGI signed $3.82 billion in new contracts during the quarter. Its book-to-bill ratio in the past 12 months is also a very healthy 109.3% (a figure below 100% implies demand for its services is falling).

As well, the company’s contract backlog at the end of the quarter was $28.72 billion, or 1.96 times its annual revenue. That cuts your risk.

Investors can expect the company’s earnings in fiscal 2025 to rise about 8% to $8.26 a share. The stock, which has gained 8% in the past year, trades at a reasonable 18.8 times that estimate.

Thanks to its strong outlook, CGI began paying a regular quarterly dividend of $0.15 a share in December 2024. The new annual rate of $0.60 yields 0.4%. CGI was our #1 Aggressive Buy for 2024 and we still like it for new buying.

Recommendation in The Successful Investor: CGI Inc. is a buy.

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Scott Clayton

Scott is an associate editor at TSI Network. He is the lead reporter and analyst for Dividend Advisor, Power Growth Investor and Canadian Wealth Advisor and a member of the Investment Planning Committee. Scott began his investment and financial career working with Pat McKeough at The Investment Reporter in the 1980s. Subsequently, he worked at the Financial Post Corporation Service for 10 years. He joined TSI Network in 1998. He is a Bachelor of Economics graduate of York University, and he also has an M.B.A. from the Schulich School of Business.

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