CGI has a 23 per cent upside, says National Bank

National Bank Financial analyst Richard Tse likes the latest quarterly results from Canadian IT consulting giant CGI Inc (CGI Inc Stock Quote, Charts, News, Analysts, Financials TSX:GIB.A), with Tse reiterating in a Wednesday report an “Outperform” rating on the stock. Tse said CGI’s business should prove resilient during the currently tough macroeconomic environment.

Montreal-based CGI, a global IT consulting and systems integration company, reported its fourth quarter fiscal 2022 results on Wednesday, featuring quarterly revenue up 8.0 per cent year-over-year to $3.25 billion and adjusted EBIT up 5.7 per cent to $521.7 million, for a margin of 16.1 per cent. Diluted EPS was 1.51 per share, up 8.6 per cent from a year earlier, while bookings for the company were $13.97 billion, up $123.1 million from a year earlier and representing a book-to-bill ratio of 108.5 per cent.

“Looking ahead, the seemingly never-ending digitization race continues to drive demand, particularly as clients navigate an increasingly dynamic environment,” said CGI President and CEO George D. Schindler in a press release. “CGI remains well positioned to partner with clients on a wide range of business and technology objectives through our suite of end-to-end digital services and solutions, as well as participate in market consolidation.”

Tse called the quarter a solid one, where the $3.25 billion topline came out ahead of his estimate at $3.21 billion and the consensus call at $3.20 billion, while adjusted EPS at $1.56 per share was also a bit better than National Bank’s $1.54 per share estimate and the Street’s $1.55 per share.

Tse noted that CGI was able to preserve margins, while on M&A he praised the company’s record of driving value from its acquisitions, with a return on invested capital of 15.7 per cent in fiscal 2022 compared to 14.9 per cent in fiscal 2021.

Along with his “Outperform” rating, Tse reiterated a C$135.00 target price on GIB.A, which at the time of publication represented a projected one-year return of 23.4 per cent.

“Investors following our research will recall GIB.A / GIB has been our top (short-term) idea since the beginning of the year given its combination of growth and defensive attributes. Year to date, GIB.A is down -2.0 per cent versus NASDAQ: -32.7 per cent and S&P Info Tech: -29.0 per cent; while not a positive return, it continues to outperform meaningfully – despite that, it remains a favourite in a volatile backdrop,” Tse wrote.

For the upcoming fiscal 2023 year, Tse is calling for CGI to generate $13,450.7 million in revenue and $2,703.7 million in EBITDA.