CGI GROUP INC. (Toronto symbol GIB.A; www.cgi.com) is Canada’s largest provider of computer outsourcing services. It also operates in 15 other countries. Canada and the U.S. each accounted for 47% of its revenue in the latest fiscal year; Europe and Asia supplied the remaining 6%. The company often uses acquisitions to fuel its growth. CGI’s most important purchase in the past few years was its $932.2-million acquisition of Stanley Inc. in September 2010. Stanley provides computer outsourcing services to military and civilian agencies of the U.S. government. CGI’s revenue rose 3.1%, from $3.7 billion in 2007 to $3.8 billion in 2009 (the company’s fiscal years end September 30). Unfavourable currency rates cut revenue by 2.4%, to $3.7 billion, in 2010. Thanks to the Stanley acquisition, revenue rebounded to $4.3 billion in 2011. Earnings rose at a much faster pace: up 84.7%, from $235.6 million in 2007 to $435.1 million in 2011. CGI prefers to use its excess cash to buy back shares instead of paying a dividend. Because of fewer shares outstanding, earnings per share rose 125.7%, from $0.70 in 2007 to $1.58 in 2011. [ofie_ad]
Best Canadian stocks: CGI wins five-year cloud computing contract with U.S. government
CGI had to borrow some of the cash it needed to buy Stanley. That raised its long-term debt to $1 billion on September 30, 2010, from just $265.4 million a year earlier. However, CGI had cut its debt to $917.8 million by December 31, 2011. That’s just 18% of its market cap. The company is also in a strong position to profit from growing demand for cloud computing. (That’s where data is kept on centralized servers that users connect to over the Internet.) For example, CGI recently won a $20.8-million U.S., five-year contract to modernize and manage several U.S. government websites, including www.USA.gov. In all, CGI booked $1.4 billion of new contracts during the quarter ended December 31, 2011. New clients accounted for 52% of this total; the remaining 48% came from extensions and renewals. Its order backlog was $13.6 billion at the end of the quarter, up from $13.0 billion a year earlier. That’s equal to 3.2 times its annual revenue. In the latest edition of The Successful Investor, we examine whether CGI can minimize the risk involved in its acquisition strategy and sustain its earnings growth by adding new contracts. We conclude with our clear buy-sell-hold advice on the stock. You get our recommendation on CGI Group and many more of the best Canadian stocks for conservative investors when you try a risk-free introductory subscription to The Successful Investor. As a new subscriber, you can save $50.00 — and get all the details on “My #1 Stock Pick for 2012.” Click here to take advantage of this special subscription offer.
