Is CGI Group an AI play?

On Jan. 28 Nationwide Financial institution Monetary analyst Richard Tse reiterated an “Outperform” ranking and $185.00 goal on CGI Group (CGI  Group Inventory Quote, Chart, Information, Analysts, Financials TSX:GIB.A), arguing the post-results pullback following first-quarter fiscal 2026 outcomes has created a pretty entry level regardless of headline issues tied to U.S. federal softness and one-off margin impacts.

CGI reported what Tse described as stable, in-line FQ1’26 (CQ4) outcomes, with income of $4,078-million, modestly forward of each Nationwide Financial institution Monetary’s $4,034-million estimate and Avenue expectations of $4,068-million, representing year-over-year development of seven.7% or 3.4% on a constant-currency foundation. Adjusted EBITDA of $804-million and adjusted EPS of $2.12 had been in step with each inner and consensus forecasts. EBIT margin got here in at 16.1%, down barely yr over yr, reflecting the influence of the U.S. authorities shutdown and a one-time labour price adjustment in Asia Pacific tied to regulatory adjustments in India.

Past near-term noise, the analyst pointed to what he known as an more and more refined AI narrative at CGI, supported by a rising roster of formal partnerships, together with with Google and OpenAI. In his view, AI-related providers characterize a significant incremental development alternative throughout CGI’s current shopper base and will assist a valuation re-rating as capital deployment accelerates…

Tse stated the market’s deal with these one-offs has overshadowed what he views as one among CGI’s stronger quarters in latest durations, significantly on bookings. Complete bookings reached $4.47-billion, translating to a book-to-bill ratio of 1.10x. Whereas down sequentially from 1.19x in FQ4’25, Tse stated the outcome was stable given the shutdown-driven weak spot in U.S. federal exercise, which noticed section income decline 13% yr over yr and book-to-bill fall to 0.46x. Excluding U.S. federal, CGI’s mixed book-to-bill was 1.18x, with ratios above 1.0x throughout almost all different segments.

Past near-term noise, the analyst pointed to what he known as an more and more refined AI narrative at CGI, supported by a rising roster of formal partnerships, together with with Google and OpenAI. In his view, AI-related providers characterize a significant incremental development alternative throughout CGI’s current shopper base and will assist a valuation re-rating as capital deployment accelerates. He stated that CGI continues to sign confidence in its acquisition technique, noting administration expects sequential enchancment via the steadiness of the yr, together with inside U.S. federal operations, barring one other shutdown.

M&A stays a key development driver. CGI deployed roughly $1.8-billion on acquisitions in fiscal 2025 and added one other $100-million in tuck-in offers throughout FQ1’26. Tse estimates acquisitions accounted for about 8.1% of FQ1 income, whereas natural development was down 0.9% yr over yr, or 5.3% on a constant-currency foundation. He stated the mix of robust liquidity and more and more engaging acquisition valuations, now within the 1.0x to 1.5x income vary versus 2.0x to 2.5x beforehand, ought to proceed to assist accretive capital deployment.

CGI ended the quarter with money circulation from operations of $871.9-million, representing a 21.4% margin, and a days gross sales excellent determine of 37 days. Throughout the quarter, the corporate repurchased 4.6 million shares for $566.9-million, at a mean worth of $123.92 per share, and renewed its regular course issuer bid, permitting for the repurchase of as much as roughly 10% of shares excellent via February 2027.

Tse forecasts that CGI will generate $3,409-million in Adjusted EBITDA on income of $16,867-million in fiscal 2026, enhancing to $3,593-million in Adjusted EBITDA on income of $17,421-million in fiscal 2027.

At roughly 8.1x enterprise worth to EBITDA on Tse’s fiscal 2026 estimates, he stated CGI provides a compelling risk-reward profile.

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