Buy CGI Group, says RBC

IT services company CGI has seen its share price recovery stall in the $85 to $90 range over the past two months, leaving it well off its plus-$110 highs set earlier this year. The stock has delivered steady returns for more than a decade and by January of this year was up over 700 per cent since the start of 2010.

The Montreal-based company should do well in the post-COVID business environment where companies will be looking to up their game in terms of their digital infrastructure, optimizing processes and improving cybersecurity — all of which CGI provides through its consulting, out-sourcing and service contracts to both commercial and public-sector enterprise customers.

With a sizeable chunk of its business in service contracts, CGI has a large recurring revenue component, buffering it from wider economic ups and downs. As of its latest earnings report, the company’s fiscal second quarter 2020 delivered in late April, CGI had a backlog of $23 billion.

CGI’s share price took a knock in late January with its fiscal first quarter 2020 results which showed earnings down year-over-year from $311.5 million to $290.2 million or $1.06 per share.

Earnings were again down in the April second quarter compared to a year earlier, but management said the company is in good shape to withstand COVID-19.

“Our diversified mix of critical services, vertical markets and multiple geographies helped, and is helping, mitigate the impact of COVID-19 on client demand,” said President and CEO George Schindler in the Q2 press release. “Our Q2 performance is a reflection of our resilient business model and our operational excellence.”

As of publication date, Treiber’s reiterated $110.00 target price represented a projected 12-month return of 26.8 per cent.