Despite Sluggish Q4, Versant says buy CGI Group

Last year's acquisition of Virginia-based systems integrator Stanley is helping Michael Roach and CGI Group further open the door to the US market.

CGI Group (TSX:GIB.A) released its 2011 fourth quarter and year end results Friday. The Montreal company, which is Canada’s largest IT stock, beat their year prior results handily. Revenue was up 15.8% to $4.32 billion and earnings were up nearly 10% to $562 million.

CGI CEO Michael Roach says the company’s big bet on the US market is set to pay off. Last year, Roach spearheaded the acquisition of Stanley, an Arlington, Virginia based systems integrator. The $1.1 billion, debt financed acquisition was the largest acquisition in CGI’s history. “We remain convinced that CGI is well positioned to continue growing our government business globally, and specifically in the U.S. as the flow of contract awards returns to more normalized levels.” Roach said in Friday’s press release.

Despite the improved numbers, Versant Partners analyst Tom Liston described CGI’s fourth quarter results as “mixed”. Liston agrees with Roach that the company’s prospects look increasingly good in the US, pointing out that CGI has more than $1 billion in new bids into the US Federal Government alone. But CGI’s Q4 revenue of $1.03 billion was lower than Liston expected. Another concern is that CGI is doubling down on the US while the Canadian dollar is particularly strong. If currency fluctuation were backed out of the equation, the company’s revenue growth would have been nearly 19%.

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Liston, however, thinks CGI is set for steady growth in both top and bottom line, and that the company will be generating nearly $5 billion in revenue by 2014. Liston thinks the US Government and healthcare verticals will drive growth. He has a one year target of $24.50 on the stock, which is more than 20% higher than where it is currently trading. Liston’s numbers are based on thirteen times fiscal 2012 earnings, which he thinks will come in at $1.87 a share.

Shares of CGI Group closed Friday on the TSX down 0.8% to $19.95.

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