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.

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.

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

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