CGI Group is still undervalued, says National Bank Financial

Ahead of its second quarter results, National Bank Financial analyst Richard Tse says there is double-digit upside in CGI Group (CGI Group Stock Quote, Chart, News: TSX, GIB.A, NYSE:GIB).

On May 3, before market open, CGI Group will report its Q2, 2017 results. Tse thinks the company will generate operating EPS of $0.90 on revenue of $2.6-billion.

While CGI’s stock has been flat for much of the year, the analyst thinks there is reason to believe that might not continue, and that some upside surprises may develop.

“Bottom line, we think the lack of newsflow and in particular a subtle tone on acquisitions has had the stock languishing this year when it comes to performance against some of the notable comps, in particular the European-focused names like Atos and Capgemini,” says Tse. “That said, we don’t believe that’s changed the strategy at all; we continue to believe CGI continues to actively evaluate acquisitions but unlike year’s past, we think an added growth drive continues to come on stream in the form of organic growth that’s led by IP-focused solutions. For that reason, we believe there’s a relative opportunity in GIB.a / GIB today.”

In a research update to clients today, Tse maintained his “Outperform” rating and one-year price target of (C) $80.00 on CGI Group, implying a return of 26 per cent at the time of publication.

Tse thinks CGI Group will generate EBITDA of $1.98-billion on revenue of $10.69-billion in fiscal 2017. He expects these numbers will improve to EBITDA of $2.09-billion on a topline of $11.22-billion the following year.