CGI Technologies and Solutions Inc. Offers Rising Returns for Long-Term Investors

CGI Technologies and Solutions Inc. (TSX:GIB.A)(NYSE:GIB) is a must-own stock for Canadian investors according to one portfolio manager.

| More on:
The Motley Fool

Although the brand may not be well known outside government circles, CGI Technologies and Solutions Inc. (TSX:GIB.A) (NYSE:GIB) is deeply embedded in government agencies in North America and Europe, providing key information technology support and generating $10 billion in annual revenues.

CGI expanded its presence in Europe with the acquisition of Britain’s Logica in 2012. It also has a backlog of signed contracts worth more than $20 billion.

CGI released its second-quarter earnings on April 29 and the results were mixed. Although earnings per share grew to $0.78 per share from $0.73 per share in the same period last year, revenue dropped slightly to $2.7 billion from $2.8 billion.

Still, CGI remains a top pick for Alex Lane, portfolio manager of the Dynamic Canadian Power Growth Fund.

“Europe is 58% of their business so any kind of uncertainty could lead to a reduction of the multiple, but recent data suggest business in Europe is accelerating; there’s a lot of companies that need to get more efficient, that need to outsource,” Lane said in a recent interview with BNN.

Margins are improving, he added, and CGI is now in the second stage of integration with Logica. “So, there’s new business coming on that’s high margin.”

Lane estimated that CGI will ultimately reach 10-times EBITDA, which translates to $60 a share. The stock was trading at just above $50 earlier this week. “That’s a pretty good upside and we think this is a must-own name for Canadian investors.”

Morningstar recently increased its fair value estimate to $55 per share, noting that CGI has a solid operational foundation, a build-and-buy growth strategy, and vendor independence, which differentiates it from similar companies and supports both new and repeat business.

“The IT services market remains highly competitive, and vendor consolidation is expected to characterize the industry as clients increasingly look to simplify their organizational structure,” Morningstar said in a report. “However, we think CGI’s acquisition of Logica in 2012 and the resulting growth in its global delivery model has better positioned the firm to meet these market pressures and compete on a global scale.”

Although CGI does not currently pay a dividend, it generates significant free cash flow, suggesting a dividend may be in the technology company’s future. It’s definitely a stock worth further research for Foolish investors.

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 Doug Watt has no position in any stocks mentioned. CGI Technologies and Solutions Inc. is a recommendation of Stock Advisor Canada.

More on Tech Stocks

tsx today
Tech Stocks

TSX Today: What to Watch for in Stocks on Wednesday, June 7

The Bank of Canada’s interest rate decision could give further direction to TSX stocks today.

Read more »

bulb idea thinking
Tech Stocks

This Growth Stock is on the Rise and Ready to Blow

WELL stock climbed 98% before falling on recent earnings, but is now back up 16% since that drop. So now…

Read more »

Tech Stocks

Secure Your TFSA for Retirement: Top Stocks to Invest in Now

Here's how you can diversify your TFSA portfolio and hold quality stocks across multiple sectors, lowering overall risk.

Read more »

Male IT Specialist Holds Laptop and Discusses Work with Female Server Technician. They're Standing in Data Center, Rack Server Cabinet with Cloud Server Icon and Visualization
Tech Stocks

Could This Undervalued AI Company Be Canada’s Next Big Thing?

Open Text (TSX:OTEX) stock could be the next tech stock to surge from its use of artificial intelligence, making it…

Read more »

Businessman holding AI cloud
Tech Stocks

Unlocking Profit Potential: 5 AI Stocks to Watch in 2023

AI stocks such as Nvidia and Microsoft have the potential to deliver outsized gains to investors in the upcoming decade.

Read more »

Technology, internet and networking, security concept
Tech Stocks

Top Cybersecurity Stocks for June 2023

Canadian investors should look to snatch up top cybersecurity stocks like Absolute Software Corp. (TSX:ABST) to start the month of…

Read more »

online shopping
Tech Stocks

Shopify Stock Rose 22% Last Month: Is it Still a Buy in June 2023?

Shopify (TSX:SHOP) stock rose 22% in the last month but is down from 52-week highs. So, is it time to…

Read more »

A data center engineer works on a laptop at a server farm.
Tech Stocks

Psst … 2 Tech Stocks I’d Buy Before Shopify

Shopify (TSX:SHOP) stock is great -- don't get me wrong. But these two tech stocks are great too, with more…

Read more »