PricewaterhouseCoopers, a global management consulting firm, said global tensions, like the military conflicts we see today, drive defence demand higher. Enhancing deterrence capabilities is a priority of many countries during heightened geopolitical risks.
For example, the U.S. Department of Defense (DOD) budget request for the fiscal year 2025 focuses on national defence and to deter aggression against America, its allies and partners. Military leaders want to build a joint force that is agile, lethal, responsive, resilient, and survivable. The proposed amount is US$849.8 billion.
On the investment front, Canadians should watch out for two domestic stocks in November. Montreal-based CGI (TSX:GIB.A) and CAE (TSX:CAE) from Saint-Laurent are federal contractors in the United States. Both companies win major contracts from defence and security customers next year.
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Active consolidator
CGI is primarily a multinational information technology consulting and software development company. The market capitalization of this large-cap stock is $33.9 billion. CGI Federal, a wholly-owned operating subsidiary, is the link to the U.S. DOD and the Department of State (DoS). It provides IT services in defence, homeland security, and intelligence.
On October 22, 2024, the U.S. DoS awarded CGI Federal three task orders to support end-to-end visa application processing services for the Bureau of Consular Affairs across Scandinavia, Central Europe, China and Southeast Asia. The work aims to lighten the administrative work of government officials at embassies and consulates, provide greater transparency, and make auditing easier.
The awards are part of CGI’s Global Support Strategy for Overseas Consular Support Services 2.0. The combined total value of the indefinite-delivery, indefinite-quantity (IDIQ) multi-award is US$137.3 million. CGI’s fiscal 2024 results showed increasing revenue growth, sustained earnings expansion, and $629.1 million cash from operations.
In the 12 months ending September 30, 2024), revenue and net earnings increased 2.7% and 3.8% year over year to $14.68 billion and $1.69 billion. The total backlog at year-end reached $28.7 billion.
François Boulanger, president and chief executive officer (CEO), said, “Looking ahead to fiscal year 2025, we continue to see opportunities for CGI to deliver on our full offering value proposition, which enables clients to achieve business outcomes.” He describes CGI as an active consolidator.
GIB.A trades at $150.50 per share (+6.02% year to date). The defence stock carries a “buy” to “strong buy” rating from market analysts. Their 12-month average price target is $170.43, a +13% upside.
Integrator
CAE’s Defence & Security business unit is known globally as a training and mission systems integrator. The $9.85 billion high technology company caters to global defence and security customers. It also provides training and mission support solutions across multi-domain operations such as air, land, maritime, space, and cyber.
In the second quarter (Q2) of fiscal 2025 (three months ending September 30, 2024), revenue and operating income increased 8% and 21% to $1.14 billion and $118.1 million versus Q2 fiscal 2024. Its president and CEO, Marc Parent, said there is robust market demand for CAE’s Civil Aviation and Defense and Security solutions.
He added the company’s structural improvements in the defence segment improved growth and margins. If you invest today, the share price is $30.91 (+8.08%).
Major players
CGI and CAE are major aerospace and defence industry players. The respective businesses thrive because of the critical products and services they provide, especially on the defence side.
