Buy CGI Group on a pullback, this portfolio manager says

If you get a chance to buy CGI Group (CGI Group Stock Quote, Chart, News: TSX:GIB.A) on a pullback, take it, says Christine Poole, CEO of GlobeInvest Capital, who argues that the company keeps finding space for growth in the IT consulting sector.

As far as tech companies go, Montreal-based CGI has been around the block a few times. Founded in 1976, it now stands as the fifth largest independent IT and business consulting company in the world.

But as established as CGI is, Poole argues that CGI still has a knack for finding room to grow, either through new acquisitions or the opening up of new territory.

“We think it’s a well-managed company,” Poole told BNN Bloomberg recently. “Half [of CGI’s business] comes from outsourcing, which is a recurring revenue stream with long-term contracts, so there are a lot more stable cash flows. The other side is the systems integration so that’s contract work, which a lot of times is a good lead for the outsourcing. Once they implement the system, sometimes their clients will outsource it to them.”

Last month, CGI reported its quarterly financials, featuring revenue of $3.0 billion, up 8.3 per cent year over year, with net earnings for the quarter of $274.4 million and an earnings per diluted share of 94 cents, compared to 90 cents a year ago.

“It’s a relatively mature business, so every once in a while, CGI will do an acquisition to grow a vertical market or to expand their geography,” says Poole. “They’re ready to do another bigger acquisition but have not found one that makes sense financially because they’re looking for certain returns.”

One of the smaller acquisitions of late occurred last month when CGI picked up Facilité Informatique, an IT consulting services firm which the company says has a strong local presence in Montreal and Québec City.

CGI’s share price hit a new high of $82.00 last week, while the stock is up 18.5 per cent in 2018.

“My price target on the stock is in the high $85 – $87 level,” says Poole. “Right now at about $80, the stock has had a nice move. You might want to wait for a pullback to get into this name. I like it long-term.”