On today's TSX Breakouts report, there are 10 stocks on the positive breakouts list (stocks with positive price momentum), and 46 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that appears on the positive breakouts list. The company has delivered strong gains to long-term investors. On Wednesday, the share price soared to close at a record high after the company reported solid quarterly results. The security highlighted today is CGI Group Inc. (GIB-A- T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Montreal-based CGI Group is the fifth largest independent information technology and business consulting services firms globally. The company provides consulting services, technological systems and solutions, and technology servicing outsourced from its clients.
Before the market opened on Jan. 31, the company reported better-than-expected financial results that sent the share price soaring to close at a record high.
The company reported solid first-quarter fiscal 2018 results – its year-end is Sept. 30. Revenue climbed 5.3 per cent (4.9 per cent on a constant currency basis) year-over-year to $2.8-billion, of which approximately 2 per cent was organic, or internal, growth. Adjusted EBIT (earnings before interest and taxes) was $406.3-million with an EBIT margin of 14.4 per cent. Adjusted earnings per share came in at 99 cents, ahead of the consensus estimate of 97 cents. Bookings were strong at $3.0-billion in the first quarter with a book-to-bill ratio was 1.06 times. Backlog expanded to $21.1-billion. The lower U.S. federal corporate tax rate is a positive for the company. Management anticipates their tax rate will decline to between 24.5 per cent and 26.5 per cent in fiscal 2018.
On the earnings call, management reiterated its commitment to doubling the size of the company over the next five to seven years through its "Build and Buy" strategy. Management targets 50 per cent of its growth will come from acquisitions and 50 per cent of its growth will be organic, or internal, growth.
The company's shares are dual-listed, trading on Toronto Stock Exchange under the ticker GIB.A and on the New York Stock Exchange with the ticker GIB.
Returning capital to shareholders
Management is focused on growth and as a result, currently does not pay its shareholders a dividend.
The company has been actively repurchasing shares as part of its share buyback program As at Jan 26, 2018 the company had repurchased over 13.8-million shares at a weighted average price of $62.87 per share.
On Jan. 31, 2018, the company's board of directors authorized the renewal of its share buyback program for the next 12 months, subject to approval from the TSX.
Analysts' recommendations
The stock is well covered. There are 21 analysts providing recent research coverage on this stock, of which 14 analysts have buy recommendations, six analysts have hold recommendations and one analyst has a "sell/neutral" recommendation on the stock (a recommendation maintained throughout 2017).
The firms providing recent research coverage on the company are as follows in alphabetical order: Barclays, BMO Capital Markets, Canaccord Genuity, CIBC Capital Markets, Cormark Securities, Desjardins Securities, Echelon Wealth Partners, Edward Jones, Eight Capital, GMP, Goldman Sachs, Macquarie, Morningstar, National Bank Financial, Raymond James, RBC Capital Markets, Scotia Capital, Société Général, TD Securities, Veritas Investment Research, and Wells Fargo Securities.
Revised recommendations
In recent days, analysts have revised their expectations – all higher. Listed below are several notable recent revisions.
On the first day of February, Maher Yaghi, the analyst from Desjardins Securities, increased his target price to $80 from $77.50. Robert Young from Canaccord Genuity took his target price up to $79 from $74. Derric Marcone, the analyst from Société Général, lifted his target price by $3 to $76.
In January, Paul Steep from Scotia Capital increased his target price to $76 from $72. Stephanie Price from CIBC Capital Markets bumped her target price up to $80 from $76. Thanos Moschopoulos from BMO Capital Markets increased his target price to $78 from $75. Paul Treiber from RBC Capital Markets raised his target price by $2 to $82. Richard Tse from National Bank Financial increased his target price to $85 from $80. Steven Li from Raymond James raised his target price to $80 from $78.
Financial Forecasts
The Street is forecasting earnings per share of $4.13 in fiscal 2018, rising to $4.47 in fiscal 2019.
Consensus earnings forecasts have been revised higher in recent months. For instance, three months ago, the Street was forecasting earnings per share of $4.04 for fiscal 2018 and $4.32 for fiscal 2019.
Valuation
According to Bloomberg, the stock trades at a price-to-earnings multiple of 15.7 times the fiscal 2019 consensus estimate, in-line with its three-year historical average of 15.6 times. On an enterprise value-to-EBITDA (earnings before interest, taxes, depreciation and amortization) basis, the stock is trading at 10 times the fiscal 2019 consensus estimate, slightly above the three-year historical average of 9.5 times.
Based on fiscal 2018 consensus numbers, the stock trades at a P/E multiple of 17 times, in-line with its three-year historical average of 16.8 times. On an EV/EBITDA basis, the stock is trading at 10.5 times, slightly above the three-year historical average of 10 times.
The average one-year target price is $74.22, suggesting the share price has 5 per cent upside potential over the next 12 months. Individual target prices provided by 20 firms vary widely and are as follows in numerical order: $58, $59, two at $72, $75, three at $76, three at $77, $77.50, $77.60, $78, $79, two at $80, $82, and two at $85.
Insider transaction activity
On Dec. 5, Doug McCuaig, the President of Eastern, Central and Southern Europe operations, exercised his options and sold the corresponding number of shares (13,752) at an average price of over $67 per share, eliminating the portfolio's position.
Prior to that, on Nov. 28, the company's Chief Financial Officer François Boulanger exercised his options and sold the corresponding number of shares (9,463) at an average price per share of $69.01, eliminating the portfolio's position.
Chart watch
On Wednesday, the share price rallied 1.8 per cent to a record closing high on large volume. Over 1.9-million shares traded, well above the three-month historical daily average trading volume of approximately 753,000 shares. The share price broke above a key technical resistance level, $70, and more importantly, on high volume, reflecting strong demand for the stock. The next ceiling of resistance is around $75.
Looking at the downside, there is technical support around $65, close to its 200-day moving average at $66.24. Failing that, there is strong technical support around $60.
The stock remains in an uptrend. Pull up a chart going back ten years and you will see the solid gains that the stock has provided to long-term shareholders.
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The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company's dividend policy, analysts' recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.