CGI Group (TSX:GIB.A), the Canadian IT consulting and services powerhouse, reported another solid quarter in April: $4 billion in revenue, up 7.6% year-over-year, and adjusted earnings per share growing nicely as well. But investors looking ahead want to know: Where is this ship sailing over the next three years? Based on the tech stock’s current strategy, market position, and recent insights, let’s map out CGI stock’s potential path to 2028.
The growth engine: Acquisitions keep rolling (but integration is key)
Right now, CGI’s growth is heavily fueled by its chequebook. Recent buys like BJSS (UK), Novatec (Germany/Spain), and the pending Apside deal (France) aren’t only adding revenue; they’re strategically planting CGI’s corporate flags in key metropolitan markets globally. CEO François Boulanger explicitly stated that this “Build and Buy” strategy is core to the company’s profitable growth plan for the foreseeable future. Investors should expect this trend to continue aggressively through 2028. Boulanger hinted at potential “transformative” acquisitions, particularly eyeing the massive U.S. commercial market or Germany.
However, acquisitions bring complexity. Integrating thousands of new consultants (like the nearly 5,500 from recent deals) and their distinct cultures takes time and money. Investors have already seen the dilutive effect on margins – the IP (intellectual property) revenue contribution dipped slightly, and the earnings before income taxes (EBIT) margin took a 90-basis-point hit last quarter, partly due to acquisition costs.
The next three years will be a test of CGI’s ability to smoothly integrate acquired firms, boost their profitability to CGI’s standards, and cross-sell its broader portfolio (especially high-margin managed services and intellectual property (IP) solutions) to the new client bases. Success here is paramount for sustained earnings growth.
CGI’s margin story: Pressure now, potential improvements later
CGI’s near-term profitability faces headwinds. Beyond acquisition dilution, the company is significantly restructuring, primarily within its underperforming Continental European operations. It booked $44 million in restructuring costs last quarter and expects another $137 million in future periods as it parts ways with roughly 1.5% of its workforce. While painful in the short term, management is clear: this restructuring is essential to improve utilization and restore margins in those regions. Management points to success in Scandinavia, where similar actions yielded a 200-basis-point EBIT margin improvement.
The product mix shift towards managed services (where bookings grew 21% year-over-year during the last half year) is a long-term positive. The new multi-year contracts offer stable, recurring revenue and typically carry better margins than project-based consulting, which is currently softer. As managed services become a larger portion of revenue and restructuring benefits potentially materialize in late 2026 into 2027, investors could see CGI’s overall EBIT margins begin to climb back towards, and potentially exceed, historical levels.
I would expect near-term margin pressure to persist before potential improvement.
Cash is king: CGI organically funding its growth and returns
CGI remains a cash-generating machine. It recognized $438 million in operating cash flow last quarter (11% of revenue, despite restructuring hits) and over $2.2 billion on a trailing 12-month basis. This financial muscle funds its entire strategy.
Internally generated cash flow funds CGI’s internal investments in artificial intelligence (AI) capabilities, accretive acquisitions and sustained share repurchase programs, and may support dividend increases. The company repurchased about 5.7% of its outstanding shares over the past three years and initiated dividends in 2024. Moderate dividend growth may be a realistic expectation over the next three years.
Risks to consider
No journey is without bumps. CGI management openly acknowledged an “unpredictable” demand environment in April. Clients, wary of macro issues like tariffs and economic softness, especially in Europe, may prioritize cost savings (boosting managed services) but delay some new project starts, hurting other CGI segments. While CGI’s massive $31 billion backlog, which equates to two years of revenue, provides incredible visibility and resilience, prolonged economic weakness could dampen new booking momentum.
Further, the market has shown some skepticism. CGI has missed earnings expectations for the last two quarters, breaking a long streak of earnings beats. Investors will be watching closely to see if this is a temporary blip related to mergers and acquisitions and restructuring costs, or a sign of deeper challenges to organic growth potential.
The 3-year vision: A larger, more efficient CGI
Barring a severe economic downturn, three years from now, CGI will likely be significantly larger due to acquisitions, more efficient after restructuring efforts, and returning more capital to shareholders through share repurchases and, perhaps, growing dividends.
