Negative organic growth is tripping up CGI Group, says Cormark

A quarter that was just okay isn’t changing Cormark analyst Richard Tse’s bullish view of CGI Group’s (CGI Group Stock Quote, Chart, News: TSX:GIB.A, NYSE:GIB) long term prospects.

Yesterday, CGI Group reported its Q2, 2016 results. The company earned $282.7-million on revenue of $2.8-billion, a topline that was up 5.7 per cent over the same period last year.

“Our strong financial performance reflects the alignment of our comprehensive portfolio of services and solutions with rising client demand,” said CEO Michael Roach. “We remain committed to the successful execution of our build-and-buy strategy by investing in areas clients value the most, such as digital and security-related capabilities, through talent expansion and strategic acquisitions.”

Tse says CGI results were basically in-line with his expectations, but thinks continued negative organic growth has disrupted a positive story line, at least in the short term.

“But has our investment thesis on CGI changed – not really,” adds Tse. “When it comes to the underlying foundation to driving growth, we believe all the necessary elements in place have not changed. Those elements include a strong balance sheet, expanding margins, recurring cash flow and organizational/operating changes made in recent quarters to capture an increasing share of transformative digital outsourcing opportunities over the next 12-24 months given a track record of execution.”

In a research update to clients today, Tse maintained his “Buy” rating and one-year price target of $65.00 on CGI Group.