Ahead of Q1 results, Cantor Fitzgerald says buy CGI Group

Cantor Fitzgerald analyst Justin Kew notes that the Indian rupee has depreciated 7% year-over- year and has increased the purchasing power of the Canadian dollar. Overall, he expects foreign exchange will have a slightly positive impact on CGI's Q1 EBIT margins.

Foreign exchange tailwinds will help solidify a quarter for CGI Group (TSX:GIB.A) that was already looking good, says Cantor Fitzgerald analyst Justin Kew.

On Wednesday, before market open, CGI will release its Q1, 2014 results. The company is following on a Q4 in which it posted EPS of $0.67 on revenue of $2.5-billion, up 53% over the same period a year prior. The company’s topline, of course, was positively impacted by the $3.3-billion acquisition of London-based IT company Logica, completed in August of 2012.

Kew says he expects that CGI’s margins will be stable or growing because Logica is now fully integrated. The Cantor Fitzgerald analyst also believes that recent wins points to momentum in CGI government business, where he sees a growing backlog. He expects that CGI will post adjusted EPS of $0.71 on revenue of $2.6-billion in Q1, figures that are in-line with the street consensus.

In a research update to clients this morning, Kew maintained his BUY rating and $46.00 target on CGI Group.

Kew notes that CGI reports in Canadian dollars, but receives payment in multiple currencies. The foreign exchange rate between Canada and the U.S. is well publicized, but the Cantor analyst notes that foreign exchange rates have generally appreciated year-over-year. He notes, for example, that the The Indian rupee depreciated 7% year-over- year and has increased the purchasing power of the Canadian dollar. Overall, Kew expects foreign exchange will have a slightly positive impact on EBIT margins.

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