CGI Group is undervalued, National Bank says

Ahead of the company’s first quarter results, National Bank Financial analyst Richard Tse remains bullish on CGI Group (CGI Group Stock Quote, Chart, News, Analysts, Financials TSX:GIB.A)

On January 31, CGI will report its Q1, 2024 results. The analyst outlined his expectations.

“We believe FQ1 (CQ4) results for CGI will be largely in line with both our (NBF) and consensus expectations,” he said. “Those expectations still mean moderating growth care of a challenging Y/Y comparable.”

“With $3.06 bln in available liquidity ($1.57 bln in cash) and a low leverage ratio of 0.5x (Net Debt/TTM EBITDA), CGI has financial flexibility to remain active on buybacks while being opportunistic with respect to M&A. On that, the acquisition of Momentum Consulting Corp. on October 11, 2023 should provide some comfort that CGI is moving on its “buy” strategy.”

In a research update to clients January 26, Tse maintained his “Outperform” rating and 12-month price target of (C) $175.00 on CGI Group.

“What do you do with the stock? We continue to believe CGI has more potential for outperformance (relative to peers) given its prowess in cost optimization services, renewed focus on M&A and attractive defensive attributes (e.g., recurring revenue and cash flow, long-term contracts),” the analyst wrote. “We reiterate our Outperform rating and $175 DCF based target which implies a valuation of 14.1x EV/EBITDA on our F2024 estimates (unchanged).”