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CGI to part ways with Massachusetts. “Not material,” says Cantor

Blue Cross Blue Shield of Massachusetts VP Sarah Iselin says the state will part ways with CGI Group. But Cantor Fitzgerald Canada analyst Justin Kew says he expects contract will run its full term, to September 2014.
Blue Cross Blue Shield of Massachusetts VP Sarah Iselin says the state will part ways with CGI Group. But Cantor Fitzgerald Canada analyst Justin Kew says he expects the contract will run its full term, to September 2014.

More bad press in the U.S. for CGI Group (TSX:GIB.A) is sound and fury, but it signifies nothing, says Cantor Fitzgerald analyst Justin Kew.

Yesterday, the Boston Herald ran a salacious headline: “Massachusetts firing Obamacare contractor CGI”. Sarah Iselin, a VP with Blue Cross Blue Shield of Massachusetts, broke the news.

“We have made the decision that we are going to be parting ways with CGI,” she said. “We have just begun the process of negotiating what we hope will be a very careful transition.”

Kew says after all the headaches CGI has had around Obamacare, this setback in Massachusetts “is most likely the last of the headline risk associated with the online healthcare insurance exchanges.” He says the news does nothing to change his views on CGI’s fundamentals, which he believes are extremely strong. The Cantor Fitzgerald Canada analyst notes that the Montreal-based company boasts industry leading margins, a growing order backlog and solid growth. In a research update to clients this morning, Kew maintained his BUY recommendation and $46.00 one-year target.

Kew explains that he believes that the the move by Massachusetts is not material because the fact that no successor has been named likely means the contract will run its full term to September 2014. He believes that CGI will ultimately be paid for the full value of the contract, which is $69-million, less the $15-million it has already been paid.

Shares of CGI Group on the TSX closed today up .2% to $34.77.

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About The Author /

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.

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