Cormark analyst Richard Tse raises target on CGI Group to $40

Cormark analyst Richard Tse says CGI Group’s (CGI Group Stock Quote, Chart, News: TSX:GIB.A) acquisition of Logica is pacing better than expected, and will deliver the next upward leg for the stock.

On Wednesday, July 31st, CGI will report its Q3, fiscal 2013 results. Tse says he is expecting another good quarter from the company, and continued progress on the massive Logica integration. He thinks the company will post EPS of $0.58 on revenue of $2.6-billion.

Tse says he believes many are still underestimating the impact of the Logica acquisition, which he describes as “contrarian”. He says the trepidation about the pickup stems, in part, from a European economic backdrop that remains soft.

But the Cormark analyst says that while Europe is still weak, it is improving, if only marginally. And despite these conditions, the combined CGI-Logica entity has already met his expectations, and should only be bolstered by an “eventual turn” in Europe and revenue synergies from Logica, which have not been a driver to date.

In a research update to clients this morning, Tse reiterated his BUY recommendation on CGI Group, but raised his one year price target by five dollars, to $40.

CGI closed the $3.3-billion acquisition of London-based IT company Logica last August. The Montreal-based company is now one of the largest independent information technology (IT) and business process services firm in the world, employing 69,000 people.