CGI’s shares hit a record high of $160.40 on March 21, 2024, but dropped on fears that businesses may cut spending on technology services as they cope with higher operating costs and interest rates.
However, that may be a false economy, as the company helps them improve their efficiency. As well, clients are relying on the company to integrate artificial intelligence tools into their systems.
In fact, an expanding client base and increased contract wins indicate demand strong enough to fund the company’s growth initiatives and weather potential economic downturns too.
Meanwhile, the stock trades at an attractive 19.5 times the company’s forward earnings forecast.
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CGI INC. (Toronto symbol GIB.A; www.cgi.com) is your #1 Aggressive Buy for 2024.
The company is 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 fuels its 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.
The “Build” part refers to the expansion of its current client relationships and the development of new ones. The “Buy” part involves making acquisitions.
Under the Buy part of that strategy, CGI has agreed to acquire Aeyon for an undisclosed amount. 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.
Thanks to acquisitions like Aeyon and new contract wins, CGI’s revenue in its fiscal 2024 third quarter, ended June 30, 2024, rose 1.3%, to $3.67 billion from $3.62 billion a year earlier. However, that missed the consensus forecast of $3.69 billion. If you factor out the benefit from currency rates, revenue rose 0.2% in the latest quarter.
Growth Stocks: Earnings rise 6.1%
CGI recently completed a cost optimization plan, which included job cuts and selling surplus real estate. If you exclude those restructuring costs and other unusual items, overall earnings in the quarter rose 3.4%, to $440.2 million from $425.7 million. Due to fewer shares outstanding, earnings per share improved 6.1%, to $1.91 from $1.80. That matched the consensus estimate.
CGI signed $4.28 billion in new contracts during the quarter. Its book-to-bill ratio in the past 12 months is also a very healthy 111.7% (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 $27.56 billion, or 1.90 times its annual revenue. That cuts your risk.
Investors can expect the company’s earnings for all of fiscal 2024 to rise about 8% to $7.63 a share. The stock, which has gained 16% in the past year, trades at a reasonable 19.5 times that estimate.
Thanks to its strong outlook, CGI now plans to begin paying a quarterly dividend of $0.15 a share, starting in the first quarter of fiscal 2025. The new annual rate of $0.60 yields 0.4%.
The company also recently repurchased 2.89 million class A shares from the Caisse de dépôt et placement du Québec; it manages the province’s public pension plan. The company paid Caisse $400.0 million for those shares. Following the transaction, the pension plan manager still holds 7.15% of the class A shares.
Under its current authorization, CGI still can still buy back up to 15.1 million class A shares (roughly 7% of the total shares outstanding) by February 5, 2025.
CGI is your #1 Aggressive buy for 2024.
Recommendation in The Successful Investor: CGI Inc. is a buy.
