A new contract with the U.S. Army is a signal that CGI Group (TSX:GIB.A, NYSE:GIB) is returning to a mix of organic growth and growth through acquisition, says Echelon Wealth Partners analyst Ralph Garcea.
On Wednesday, CGI Group announced it had signed a ten-year contract with the U.S. Army worth (U.S.) $133.9-million. CGI says it will provide an enterprise-wide contract writing and maangement system.
“We are very proud to be chosen to help lead the army into a brand new era of enterprise-wide contracting,” said CGI federal president Tim Hurlebaus. “Momentum dovetails perfectly with the army’s requirements. It’s a world-class support program and capability developed for an active user community, and we’re fully committed to partnering with the army and the ACWS team to achieve their vision.”
Garcea notes that after exiting unprofitable contracts over the past several years, CGI has returned to overall organic growth across most regions. The analyst says the company’s drive to higher-margin, IP-based revenues is expanding the company’s margins. He thinks this contract is an example of those efforts.
“The contract will leverage CGI’s Momentum enterprise solution,” the analyst says. “This type of competitive win reaffirms our thesis of a return to organic growth coupled with acquisitive growth.”
In a research update to clients today, Garcea maintained his “Buy” rating and one-year price target of $82.00 on CGI Group, implying a return of 25 per cent at the time of publication.
Garcea thinks CGI will post EBITDA of $2.0-billion on revenue of $10.99-billion in fiscal 2017. He expects those numbers will improve to EBITDA of $2.16-billion on a topline of $11.55-billion the following year.