On April 29, before market open, CGI will report its Q2, 2015 results. Tse thinks the company will generate operating EPS of $0.77 on revenue of $2.6-billion in the quarter, a little shy of the consensus of $0.80 on a topline of $2.7-billion.
The analyst points out that several indicators suggest the macro backdrop for CGI is a soft one. He points to Global ISG’s Q1 global outsourcing call and IBM’s Q1/15 results which he says seemed to corroborate that report, “particularly given IBM’s comments on Europe”. Tse says this is tempered by a U.S. market that appears to be showing signs of strength.
The analyst regards this backdrop as a more near term reality, and says he likes CGI’s opportunity in the longer term.
“…Despite these short-term risks, we continue to like the name as we see progressively scaling numbers as we move into the back (fiscal) half of the year as the treadmill effect of the contract runoffs subsides and new bookings conversion into revenue drive that outlook,” he said. “Beyond that, we continue to believe the market for acquisitions has been very active in IT Services as of late and it is our view that CGI will be an active participant in that market consolidation which has been a major growth driver for this stock. So while our expectations for the quarter are tempered, we continue to like the name based on our 12-month outlook.”
In a research update to clients today, Tse maintained his “Buy” rating but raised his one year target on CGI Group from $58.00 to $65.00.