Following the release of its fiscal second quarter results, Stifel GMP is reiterating its Buy rating on CGI, the Toronto- and New York-listed independent IT and business consulting services firm.
The group’s revenue was up 13.7% and diluted earnings per share (EPS) up 15% in fiscal 2Q, which CGI said was driven by a “combination of strong revenue growth and operational discipline.”
Analysts at Stifel pointed to CGI’s fifth consecutive quarter of double-digit growth and margin expansion, indicating that its local client proximity model and end-to-end offering is paying off, especially in a time when certain global IT peers are struggling with slowing growth and margin erosion due to the challenging and uncertain macro backdrop.
CGI's competitive positioning has allowed it to benefit early from the shift in IT spend priorities to cost-cutting and near-term ROI initiatives, Stifel noted.
This has resulted in a growing pipeline of larger, multi-year managed services deals, which have seen a significant increase of 20% quarter-over-quarter.
As well, analysts believe that CGI's bookings and backlog growth provide solid visibility ahead, pointing to a continued outlook for healthy revenue growth with margin expansion.
Stifel has raised its target price for CGI to $155/share, up from $140/share, based on higher estimates.
“We see CGI's strong, consistent execution, defensive characteristics, and M&A optionality supporting a valuation premium versus peers,” Stifel noted.
Shares of CGI were trading at US$101 in New York and C$137.34 in Toronto.
Contact Angela at angela@proactiveinvestors.com
Follow her on Twitter @AHarmantas