On Friday, UBS began coverage on CGI Group (NYSE:GIB) stock, traded on the New York Stock Exchange under the ticker NYSE:GIB, with a Neutral rating and a price target of $112.00.
The firm sees the global information technology and consulting services company as a solid investment opportunity due to its managed IT services and IT consulting & business integration offerings, which respectively accounted for approximately 54% and 46% of its revenue for the fiscal year ending in September 2023.
CGI Group is positioned to benefit from long-term secular trends such as IT modernization, the implementation of General AI, cybersecurity, and an increase in IT outsourcing. These factors could potentially offer investors a way to engage with these growing sectors without the risks typically associated with volatility in the technologically-driven market.
Despite the potential for growth, UBS has taken a cautious stance due to the current lack of significant near-term catalysts that could drive the stock's value higher. Additionally, the prevailing macroeconomic uncertainty is causing clients to be more cautious, and a slow pace of acquisitions could impact the company's revenue growth.
UBS's assessment suggests that CGI Group's stock is trading at a valuation that is in line with its 3-year average, specifically at 17.0 times its forward two-year Price to Earnings (P/E) ratio. This valuation, according to UBS, indicates that the stock is fairly priced at the moment, balancing the longer-term positive trends with the near-term risks faced by the company.
In other recent news, CGI Group experienced a slight increase in revenue for the second quarter of fiscal year 2024, with a focus on expanding digital services and exploring merger opportunities. The company's net earnings increased to CAD 427 million, and it is actively investing in artificial intelligence (AI).
Jefferies recently initiated coverage on CGI Group, assigning a Buy rating and praising the company's resilient growth strategy amid economic downturns. The firm projected an improvement in CGI's growth from low single-digit this year to mid-single-digit next year.
Jefferies also commended CGI's management for its disciplined approach to capital allocation, including its strategy for mergers and acquisitions. BMO Capital, while reducing the price target from Cdn$170.00 to Cdn$160.00, continues to endorse CGI Group with an Outperform rating.
The company's revenues fell slightly short of expectations, but earnings per share were slightly above. These are just some of the recent developments concerning CGI Group.
InvestingPro Insights
CGI Group (NYSE:GIB), with its strong presence in the IT services sector, is marked by a robust Piotroski Score of 9, indicating sound financial health. This is particularly relevant for investors looking for stable investment opportunities within the technology sector. Additionally, the company's ability to comfortably cover interest payments with its cash flows provides a measure of security against financial distress.
InvestingPro data shows CGI Group with a market capitalization of $24.08 billion and a P/E ratio of 20.5, which adjusts to 19.05 for the last twelve months as of Q2 2024. The company's revenue growth for the same period stands at 5.87%, reflecting steady business progress. Moreover, the company's stock has experienced a 1-month price total return of 7.78%, suggesting a positive market sentiment in the short term.
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