Could CGI Group Inc.’s Q4 Beat Drive its Shares Even Higher?

CGI Group Inc. (TSX:GIB.A)(NYSE:GIB), the world’s fifth-largest independent information technology and business-process-services company, announced better-than-expected fourth-quarter earnings results before the market opened on November 11, and its stock responded by rising over 4.5% in the day’s trading session.

Let’s take a closer look at the results to determine if this could be the start of a sustained rally higher and if we should be long-term buyers of the stock today.

Surpassing analysts’ expectations with ease

Here’s a summary of CGI’s fourth-quarter earnings compared with what analysts had anticipated and its results in the same period a year ago.

 Source: Financial Times

CGI’s adjusted earnings per share increased 12.3% and its revenue increased 4.1% compared with the fourth quarter of fiscal 2014. The company’s double-digit percentage increase in earnings per share can be attributed to its adjusted net earnings increasing 11.3% to $260.44 million and its weighted-average number of diluted shares outstanding decreasing 0.3% to 318.57 million.

Its strong revenue growth can be attributed to its revenues increasing in four of its seven segments, including 14.8% growth to $752.23 million in its U.S. segment, 10.4% growth to $355.1 million in its U.K. segment, 15.3% growth to $128.06 million in its Asia Pacific segment, and 0.7% growth to $314.23 million in its France segment.

Here’s a quick breakdown of 10 other notable statistics from the report compared with the year-ago period:

1. Revenues decreased 2.9% to $371.82 million in its Canada segment
2. Revenues decreased 3.8% to $368.11 million in its Nordics segment
3. Revenues decreased 7.1% to $295.72 million in its Eastern, Central, and Southern Europe segment
4. Adjusted earnings before interest and taxes increased 2.4% to $378.96 million
5. Return on invested capital remained unchanged at 14.5%
6. Cash provided by operating activities increased 9.5% to $451.31 million
7. Backlog increased 13.6% to $20.71 billion
8. Bookings increased 39.4% to $2.86 billion
9. Net debt decreased 15.8% to $1.78 billion
10. It repurchased 4.85 million of its Class A shares for a total cost of approximately $229.04 million, while it did not make any repurchases in the year-ago period

Could this be the start of a sustained rally higher? 

It was a fantastic quarter overall for CGI, so I think its stock has responded correctly by moving higher. I also think this could be the start of a sustained rally to new all-time highs, and I think it represents a great long-term investment opportunity today.

First, CGI’s stock still trades at just 17.2 times fiscal 2015’s adjusted earnings per share of $3.13 and only 15.7 times analysts’ estimated earnings per share of $3.43 for fiscal 2016, both of which are very inexpensive compared with its five-year average price-to-earnings multiple of 35.5 and the industry average multiple of 22.7.

With its average multiples and 8.5% long-term growth rate in mind, I think CGI’s stock could consistently command a fair multiple of at least 20, which would place its shares upwards of $68 by the conclusion of fiscal 2016, representing upside of more than 26% from today’s levels.

Second, CGI has been repurchasing its Class A shares at an accelerated rate over the last few years, including 723,100 shares for a total cost of $22.87 million in fiscal 2013, 2.84 million shares for a total cost of $111.47 million in fiscal 2014, and 6.93 million shares for a total cost of $323.07 million in fiscal 2015, and I think its repurchases will grow again in fiscal 2016. These repurchases will help boost the company’s earnings-per-share growth going forward and make its remaining shares more valuable than ever.

With all of the information provided above in mind, I think CGI Group is one of the top value plays in the tech sector today. All Foolish investors should take a closer look and strongly consider beginning to scale in to long-term positions.