It’s time to buy CGI Group, this investor says

Remember those solid tech names you’ve been watching from the sidelines, waiting for that sizeable pullback to present a buying opportunity? Well, here’s your chance, as CGI Group (CGI Group Stock Quote, Chart, News TSX:GIB.A), a monster of a tech name over the past ten years, is now on sale.

Brian Acker of Acker Finley says with the chance of a further drop coming up, the stock is looking tremendous.

Markets have picked up over the last few trading days, erasing some of the losses suffered in recent weeks, with the S&P/TSX Composite Index finishing up almost three per cent on Monday. That’s after double-digit gains last week by indices worldwide, a welcome respite from the deluge of bad news over the past month.

But with the realities of a worldwide economic shutdown in the face of COVID-19 becoming clearer by the day, it’s far from certain that the worst is over. Experts are predicting months more of state lockdowns and mass unemployment on a global scale, as the coronavirus makes its way around the globe, with concerns of second and third waves of infection on the horizon.

But however changed they may be in the end, worldwide economies will move past the current calamity and onto better days, eventually, which means that purely from an investment point of view, there are tremendous deals available, including with IT consulting company CGI, says Acker, CEO and chief investment strategist at Acker Finley.

“On my call [on Monday] with our whole group I highlighted CGI,” said Acker, speaking to BNN Bloomberg on Monday. “If it can get down to let's say $60, I think that's a fantastic buy.”

“Our model price is still up there in terms of $82. I think this is a good opportunity. If you already own it, I would buy more here at $70, I would average down,” Acker added. “But keep in mind this could fall to about $59 which is our support, and I would be a big buyer there at $60.”

Ten years ago, GIB.A could be bought for $15, and since then it’s been a steady upward climb, culminating with a high of $114 per share by late January 2020. That’s when CGI released an ill-received quarterly report that dropped the stock to the low $100 range, from which it really had no time to recover before the market began to tumble.

CGI released its first quarter fiscal 2020 on January 29, with revenue up three per cent year-over-year to $3.05 billion on earnings of $290.2 million, down almost seven per cent from a year earlier. The drop in profit came as a result of acquisition-related integration and restructuring costs, along with a change in buyer behaviour towards smaller, shorter-term contracts, according to management’s quarterly commentary.

The results were in line with the IT services industry which has been in more of a fallow period of late, but CGI is still a force to be reckoned with, according to National Bank Financial analyst Richard Tse, who after the Q1 2020 financials said that while management’s commentary was not short-term positive, the recent shift in CGI’s services and contracts will just take time to settle in.

“In our view, as CGI has shifted its portfolio towards digital transformational services, we believe those services have also been new to their clients. At the same time, CGI’s clients have also been trying to grasp the impact of digital transformation in their own enterprises,” said Tse in a report on January 29.

“Collectively, that means there’s been a lot to digest which has CGI’s customers opting to take on those engagements in smaller chunks. What gives us comfort is that those smaller outsourcing engagements are conversions of former consulting deals into managed service engagements (that are recurring),” he said.

“Bottom line, it’s timing of the full scope conversions and with an expected pickup in acquisitions to fill in the gap in the short-term – we’d expect growth to re-accelerate beyond this lull,” Tse concluded.