On today’s TSX Breakouts report, there are 50 stocks on the positive breakouts list (stocks with positive price momentum), and six securities are on the negative breakouts list (stocks with negative price momentum).
Quarter-to-date, the top performing sector in the S&P/TSX composite index is the technology sector, reporting a gain of 18.7 per cent, compared to a 8.6-per-cent return for the TSX Index.
Discussed today is a technology stock that briefly appeared on the positive breakouts list on Tuesday when the share price rallied to an intraday high of $120.82 before it retreated and closed at $119.14. The stock is just 10 cents away from closing at a new record high.
If dovish remarks are made by U.S. Federal Reserve Chair Jerome Powell at Wednesday’s press conference, it could send stocks higher.
The security highlighted is CGI Inc. (GIB-A-T).
A brief outline on CGI is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
Montreal-based CGI is a leading, global independent information technology and business consulting services firm. The company provides consulting services, technological systems and solutions, and technology servicing outsourced from its clients.
In terms of geographical revenue breakdown, in the fourth-quarter of fiscal 2022, 33 per cent was from the U.S., 17 per cent from Canada, 15 per cent from France, 11 per cent from U.K., 6 per cent from Germany, 5 per cent from Finland, 4 per cent from Sweden, and 9 per cent was from the rest of the world.
In the fourth-quarter of its 2022 fiscal year, ending Sept. 30, approximately 35 per cent of its revenue stemmed from government agencies.
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.
According to Bloomberg, the Caisse de dépôt et placement du Québec, an institutional investor with a longer-term investment horizon, has an ownership position of over 10 per cent.
- Revenue and earnings growth.
- Attractive revenue mix with a material contribution from government contracts.
- Diversified geographical and industry exposures.
- High backlog, which represents future revenue.
- Healthy balance sheet with $972.6-million of cash and cash equivalents at quarter-end.
- Acquisition opportunities.
- Reasonable valuation relative to historical levels.
Quarterly earnings and outlook
Before the market opened on Nov. 8, the company reported solid fourth-quarter financial results.
Revenue climbed to $3.25-billion, up 8 per cent year-over-year or up 13.9 per cent excluding negative currency impacts. Adjusted earnings before interest and taxes (EBIT) came in at $521.7-million, up 5.7 per cent year-over-year. The adjusted EBIT margin was 16.1 per cent, up 10 basis points quarter-over-quarter.
Earnings per share, excluding specific items, came in at $1.56, a penny above the consensus estimate, and up from $1.40 reported during the same period last year. Bookings totaled $3.64-billion in the quarter (37 per cent new business and 63 per cent renewals, extensions, and additions) with a strong high book-to-bill ratio of 1.12 times. Backlog stood at $24.06-billion, up from $23.24-billion reported last quarter.
For fiscal 2022, return on equity was 20.9 per cent, up from 19.8 per cent realized in fiscal 2021. Return on invested capital was 15.7 per cent, up from 14.9 per cent reported the prior year.
On the earnings call, management reiterated its commitment to its ‘Build and Buy’ growth strategy.
President and chief executive officer George Schindler said, “Our portfolio of end-to-end services and solutions and the breadth of enterprise clients working with CGI positions us to quickly identify, adapt and meet client needs. This enables CGI to profitably grow through our Build and Buy strategy for the benefit of our shareholders now, and in the future. In fact, we have a proven track record of strong financial performance even during previous economic slowdowns. Related to the buy strategy, we see an increasingly positive M&A [mergers and acquisitions] environment for CGI based on three key dynamics. Valuations are coming down notably for the publicly traded firms in our pipeline. Currency is in our favor given the strength of the Canadian dollar. And CGI’s strong balance sheet enables us to act on both metro market mergers and transformational mergers. These dynamics, along with our robust pipeline, suggest there is and will be more potential merger opportunities that are both attractive and actionable. We remain disciplined in our approach to ensure investments are accretive for shareholders and have the necessary cultural fit to deliver ongoing benefits for each of our stakeholders. In closing, we’ve architected our fiscal year 2023 business plans with the capacity to invest in driving revenue growth at or ahead of the markets where we operate, while again delivering double-digit EPS [earnings per share] accretion.”
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. In the fourth-quarter, the company repurchased 1.3-million shares at a weighted average price of $105.48. In fiscal 2022, the company repurchased 8,689,439 shares at a weighted average price of $104.57.
After the company released its fourth-quarter financial results last month, 13 analysts issued research reports on the company, of which 11 analysts have buy recommendations and two analysts have neutral recommendations.
The firms providing recent research coverage on the company are: ARC Independent Research, BMO Nesbitt Burns, Canaccord Genuity, CIBC World Markets, Desjardins Securities, Morningstar, National Bank Financial, Raymond James, RBC Dominion Securities, Scotiabank, Société Générale, Stifel Canada, and TD Securities.
After the company reported its quarterly earnings results in November, five analysts raised their target prices.
- ARC Independent Research analyst Harriet Li to $133 from $128.
- CIBC’s Stephanie Price to $140 (the high on the Street) from $135.
- Desjardins Securities Jerome Dubreuil to $130 from $126.
- Scotiabank’s Divya Goyal to $135 from $130.
- Raymond James’ Steven Li to $134 from $130.
The Street is forecasting earnings per share of $6.70 in fiscal 2023, up 9 per cent from $6.13 (excluding specific items) reported in fiscal 2022, with earnings expected to rise to $7.27 in fiscal 2024.
Earnings expectations have inched higher in recent months.Four months ago, the consensus earnings per share estimate was $6.64 for fiscal 2023.
According to Bloomberg, the stock trades at a price-to-earnings multiple of 17.8 times the fiscal 2023 consensus estimate, below its seven-year historical average of 18.3 times. On an enterprise value-to-EBITDA (earnings before interest, taxes, depreciation and amortization) basis, the stock is trading at 11.5 times the fiscal 2023 consensus estimate, in-line with its seven-year historical average of 11.2 times.
The average one-year target price is $130, suggesting there is 9 per cent upside potential. However, target prices range widely from a low of $117 to a high of $140. Individual target prices are: $117 (from Morningstar’s Malik Ahmed Khan), three at $125, $126, two at $130, $133, $134, three at $135, and $140 (from CIBC’s Stephanie Price).
Insider transaction activity
On Dec. 7-8, president of Canadian operations Guy Vigeant exercised his options, receiving a total of 3,000 shares at a cost per share of $37.11, and sold 3,000 shares at a price per share of $116.75, eliminating his position in this particular account. Net proceeds totaled nearly $239,000, excluding any associated transaction fees.
The share price closed at a record high of $119.23 on Dec. 1. In the fourth-quarter, the share price has rebounded 14.6 per cent, putting the stock in positive territory for the year. Year-to-date, the share price is up 6.5 per cent, outperforming the S&P/TSX composite index, which is down 5.7 per cent.
The stock has been a strong long-term performer with price weakness representing a buying opportunity.
Looking at key technical resistance and support levels, the stock price is approaching an initial ceiling of resistance around $120, and after that there is overhead resistance around $135. There is strong downside technical support around $110, near its 50-day moving average (at $110.98) as well as around $105, close to its 200-day moving average (at $105.99).
ESG Risk Rating
According to risk provider Sustainalytics, CGI has an ESG (environmental, social and governance) risk score of 15.3 as of June 19, 2022. A risk score of between 10 and 20 reflects a “low risk” rating.
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.
This report should not be considered an investment recommendation.
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