CGI’s Sticky Government Contracts Provide a Downside Cushion

CGI offers a rare mix of durability and growth in IT services, powered by a diversified model and sticky client relationships. It combines higher‑margin consulting and systems integration with long‑term outsourcing and managed services. That gives investors both project‑driven upside and a recurring revenue backbone. A focus on governments and regulated industries creates high switching costs and makes the company an embedded partner rather than a commodity vendor.

On top of this defensive core, management’s “build and buy” strategy deepens existing relationships in digital transformation, cloud, AI, and cybersecurity, while targeted acquisitions add specialist capabilities and expand geographic reach. These deals are funded primarily from strong free cash flow and a conservative balance sheet and that leaves room for continued M&A without over‑levering the company.

Meanwhile, the stock trades at just 11.3 times the company’s forward earnings forecast. That’s a very reasonable multiple for a mature, cash-generative IT services firm with sticky government and enterprise relationships.

CGI INC. (Toronto symbol GIB.A) gives investors exposure to Canada’s largest provider of computer outsourcing services. The company helps clients automate routine functions such as accounting and procurement, improving efficiency and allowing them to focus on their core businesses.

CGI has formed a new alliance with OpenAI, the developer of the popular ChatGPT chatbot. OpenAI’s expertise will help the company embed new artificial intelligence (AI) tools in its software products. Those tools should help its clients speed up administrative functions and cut costs.

CGI typically uses acquisitions to enhance its expertise. Under that strategy, it recently purchased Online Business Systems for an undisclosed amount. Based in Winnipeg, with offices in the U.S., the U.K. and South Africa, this firm helps businesses transform their operations to digital platforms. It also helps clients enhance their data security.

CGI also paid an undisclosed sum for Comarch Polska SA, which provides software and consulting services to government clients in Poland. The deal added 460 IT (information technology) and business consulting professionals to its operations in Poland and the Baltic States. That division now has 1,500 professionals. The new operations also nicely complement its existing operations in Europe, which supply about 40% of its revenue.

CGI’s large multi-year backlog supports earnings visibility

Meantime, CGI reported higher revenue and earnings in its latest quarter despite the impact of the recent U.S. government shutdown. The U.S. federal government accounts for about 12% of the company’s total revenue.

In its fiscal 2026 first quarter, ended December 31, 2025, CGI’s revenue rose 7.7%, to $4.08 billion from $3.79 billion a year earlier. That matched the consensus forecast. If you factor out the benefit from currency rates, revenue rose 3.4% in the quarter.

If you exclude costs to integrate recent acquisitions and other unusual items, overall earnings in the quarter rose 2.7%, to $461.0 million from $449.0 million. Due to fewer shares outstanding, earnings per share improved 7.6%, to $2.12 from $1.97. That also matched the consensus estimate of $2.10.
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CGI signed $4.77 billion in new contracts during the quarter. Its book-to-bill ratio in the past 12 months is also a healthy 110.4% (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 $31.32 billion, or 1.93 times its revenue in the 12 months ended December 31, 2025. That cuts your risk.

The stock is down 20% since the start of 2026, partly due to concerns of another U.S. government shutdown. It now trades at a reasonable 11.33.4 times the $8.95 a share that GCI will probably earn in fiscal 2026.

The company also raised your quarterly dividend by 13.3%. Starting with the December 2025 payment, investors have received $0.17 as share instead of $0.15. The new annual rate of $0.68 yields 0.7%. On top of that, CGI engaged in operations to buy back up to 10% of its class A subordinate voting shares by February 5, 2027.

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

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Jim Bates

Jim is an associate editor at TSI Network. He is the lead reporter and analyst for The Successful Investor and Wall Street Stock Forecaster and a member of the Investment Planning Committee. Jim has held the Chartered Financial Analyst designation since 1992 and spent more than a decade at the Financial Post DataGroup before joining TSI Network. He has a Bachelor of Commerce degree from the University of Toronto.

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