New contracts and a growing contract backlog contributed to an 11.6% revenue gain for CGI during the most-recent quarter.
Growing demand for the company’s efficiency-enhancing services is reflected in a healthy book-to-bill ratio of 108.9%.
Meanwhile the stock trades at 18.5 times the company’s 2023 earnings forecast.
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Canadian Growth Stocks: CGI Group, CAE Inc., Fortis Inc. Stock and more.
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.
We’ve named CGI our top Aggressive pick each year since we expanded the number of Stocks of the Year to three in 2016. The stock rose to a new record high of $120.82 in December 2022—and has moved on to new highs since then.
CGI is in a strong position to keep rising as businesses continue to shift to a cloud platform. What’s more, about half of its revenue comes from long-term contracts (a typical contract is longer than five years). That makes it harder for clients to switch to rival outsourcing providers.
Instead of paying a dividend, the company prefers to use its excess cash flow for acquisitions and to buy back shares. Buybacks reduce the number of shares outstanding and give remaining shareholders a greater stake in the company. In its most recent fiscal year, which ended September 30, 2022, CGI repurchased $913.4 million of its shares.
Growth Stocks: CGI’s revenue and earnings rose as new contracts continue to add
CGI’s revenue in its fiscal 2023 first quarter, ended December 31, 2022, rose 11.6%, to $3.45 billion from $3.09 billion a year earlier. That topped the consensus forecast of $3.32 billion. If you factor out currency rates, revenue rose 12.3% in the quarter.
Excluding unusual items, overall earnings in the quarter rose 7.8%, to $398.2 million from $369.4 million. CGI prefers to reward investors with share buybacks instead of paying dividends. Due to fewer shares outstanding, earnings per share improved 10.7%, to $1.66 from $1.50. That also beat the consensus estimate of $1.59 a share.
CGI signed $4.04 billion in new contracts during the quarter. Its book-to-bill ratio in the past 12 months is also a healthy 108.9% (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 $25.01 billion, or 1.89 times its annual revenue. That cuts your risk.
Investors can expect the company’s earnings to rise 9.3%, from $6.13 a share in fiscal 2022 to $6.70 for 2023. Your shares trade at an attractive 18.5 times that 2023 estimate. CGI is your #1 Aggressive Buy for 2023.
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