Why CGI Group Inc. Is Down Over 3% Today

CGI Group Inc. (TSX:GIB.A)(NYSE:GIB) is down over 3% on the heels of its Q3 earnings release. Should you buy on the dip? Let’s find out.

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The Motley Fool

CGI Group Inc. (TSX:GIB.A)(NYSE:GIB), the world’s fifth-largest independent information technology and business process services firm, released its third-quarter earnings results this morning, and its stock has responded by falling over 3%. Let’s take a closer look at the results and the fundamentals of its stock to determine if we should consider using this weakness as a long-term buying opportunity or wait for an even better entry point in the days ahead.

The results that failed to impress

Here’s a breakdown of 10 of the most notable statistics from CGI’s three-month period ended on June 30, 2017, compared with the same period in 2016:

Metric Q3 2017 Q3 2016 Change
Revenue $2.84 billion $2.67 billion 6.4%
Adjusted EBIT $399.1 million $390.5 million 2.2%
Adjusted EBIT margin 14.1% 14.6% (50 basis points)
Net earnings excluding specific items $278.5 million $273.8 million 1.7%
Diluted earnings per share (EPS) excluding specific items $0.93 $0.89 4.5%
Cash provided by operating activities $290.6 million $351.7 million (17.4%)
Backlog $20.8 billion $20.61 billion 0.9%
Bookings $2.68 billion $2.94 billion (9%)
Return on equity 17.2% 16.9% 30 basis points
Return on invested capital 14.7% 14.4% 30 basis points

Should you buy CGI on the dip?

It was a decent quarter overall for CGI, but the results came in mixed compared with the consensus estimates of analysts polled by Thomson Reuters, which called for adjusted EPS of $0.94 on revenue of $2.78 billion, so that’s why I think its stock has fallen by over 3%. That being said, I think the decline represents an attractive entry point for long-term investors, because the stock now trades at more attractive valuations, including just 17.4 times fiscal 2017’s estimated EPS of $3.70 and only 16 times fiscal 2018’s estimated EPS of $4.02; these multiples are inexpensive given its projected 8.2% EPS growth in 2017, its projected 8.6% EPS growth in 2018, and its estimated 7.2% long-term growth rate.

With all of the information provided above in mind, I think Foolish investors should consider using the post-earnings weakness in CGI to begin scaling in to long-term positions.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned. CGI Group is a recommendation of Stock Advisor Canada.

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