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Why CGI Group Inc. Rallied Over 3%

CGI Group Inc. (TSX: GIB.A)(NYSE:GIB), one of the world’s largest information technology and business process services providers, is up more than 3% as of 12:05 P.M. EST on Wednesday following its fiscal 2018 first-quarter earnings release. Let’s break down the quarterly results and the fundamentals of its stock to determine if this could be the start of a sustained rally higher, and if we should be long-term buyers today.

The results that ignited the rally

Here’s a quick breakdown of eight of the most notable statistics from CGI’s three-month period ended December 31, 2017, compared with the same period in 2016:

Metric Q1 2018 Q1 2017 Change
Revenue $2,816.9 million $2,675.7 million 5.3%
Adjusted EBIT $406.3 million $396.7 million 2.4%
Adjusted EBIT margin 14.4% 14.8% (40 basis points)
Net earnings excluding specific items $288.0 million $277.6 million 3.7%
Diluted earnings per share (EPS) excluding specific items $0.99 $0.90 10.0%
Cash provided by operating activities $410.1 million $349.7 million 17.3%
Backlog $21,110.1 million $20,974.8 million 0.6%
Bookings $2,976.1 million $2,962.0 million 0.5%

Renewal of its normal course issuer bid

In the press release, CGI also announced that its board of directors authorized the renewal of its normal course issuer bid, in which it plans to purchase for cancellation up to 20,595,539 of its Class-A subordinate voting shares over the next 12 months, which represents approximately 10% of its total public float.

What should you do with the stock now?  

CGI kicked off fiscal 2018 with a very strong first quarter, so I think the market has responded correctly by sending its stock higher by more than 3%. I also think the stock represents an attractive long-term investment opportunity, because it still trades at attractive valuations, including just 17.6 times fiscal 2018’s estimated EPS of $4.06 and only 16.3 times fiscal 2019’s estimated EPS of $4.37, both of which are inexpensive given its current double-digit percentage earnings-growth rate and its estimated 7% long-term earnings-growth rate.

CGI’s stock has risen more than 43% since I first recommended it on January 30, 2015, and more than 7% since I last recommended it on November 9, 2017, after its stock dropped 2.6% following its fourth-quarter earnings release, and I think it’s still a strong buy today, so take a closer look and consider initiating a long-term position.

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

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