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

CGI Group Inc. (TSX:GIB.A)(NYSE:GIB) released fourth-quarter earnings on November 11, and its stock has reacted by rising over 4.5%. Should you buy now?

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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.

Metric Q4 2015 Actual Q4 2015 Expected Q4 2014 Actual
Adjusted Earnings Per Share $0.82 $0.80 $0.73
Revenue $2.59 billion $2.55 billion $2.48 billion

 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.

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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