National Bank Financial raises price target on CGI Group

Following what he called “solid” first quarter results, National Bank Financial analyst Richard Tse has raised his price target on CGI Group (CGI Group Stock Quote, Chart, News: TSX:GIB.A, NYSE:GIB).

Yesterday, CGI reported its Q1, 2017 results. The company earned $275.7-million on revenue of $2.67-billion, a topline that was slightly lower than the $2.68-billion the company posted in the same period a year prior.

“We are off to a great start in 2017, delivering strong first quarter results driven by the rapid shift to digital that is taking place,” said CEO George D. Schindler. “Our full breadth of offerings and end-to-end capabilities are bringing the innovation, expertise and scale required to enable our clients to advance their operations.”

Tse says the quarter was in-line with his expectations, but says he sees longer term positive trends emerging for CGI Group.

“Standing back from the quarterly results for a second, we believe CGI has positioned itself well over the past 18-24 months to harvest investments to drive organic growth, while deleveraging has positioned CGI well to execute on the M&A component of its growth strategy,” says the analyst. “The upside is that both those growth opportunities appear to be hitting their stride at the same time – something we have not seen from CGI in a while. Given that, we see the stock continuing to move higher from a combination of higher earnings and valuation re-rating given accelerated growth opportunities.”

In a research update to clients today, Tse maintained his “outperform” rating, but raised his one-year price target on CGI Group from $76.00 to $80.00, implying a return of 25 per cent at the time of publication, including dividend.

Tse thinks CGI Group will post EBITDA of $2.04-billion on revenue of $11.04-billion in fiscal 2017. He expects these numbers will improve to EBITDA of $2.12-billion on a topline of $11.44-billion the following year.