CGI GROUP INC. $36 (Toronto symbol GIB.A; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 310.9 million; Market cap: $11.2 billion; Price-to-sales ratio: 1.2; No dividends paid; TSINetwork Rating: Extra Risk; www.cgi.com) is Canada’s largest provider of computer outsourcing services. CGI helps its clients automate routine functions, like accounting and buying supplies. That makes them more efficient and lets them focus on their main businesses.
CGI was our Stock of the Year for both 2010 and 2011. We first recommended it as our top choice at $15, which works out to a 140.0% gain.
The company continues to benefit from its August 2012 purchase of U.K.-based outsourcing firm Logica. Thanks to Logica, CGI earned $200.4 million in its 2013 third quarter, which ended June 30, 2013. That’s up 115.3% from $93.0 million a year ago. Due to more shares outstanding, per-share earnings rose 80.0%, to $0.63 from $0.35.
Revenue soared 141.1%, to $2.6 billion from $1.1 billion. In addition to Logica’s contribution, CGI continues to win new contracts in the U.S.
For example, CGI is helping federal and state governments bring in the Patient Protection and Affordable Care Act, or Obamacare. Revenue at its U.S. operations rose 17.8% in the latest quarter.
In all, the company booked $2.75 billion worth of contracts in the quarter. New clients accounted for 50% of this total; the remaining 50% came from extensions and renewals. CGI’s order backlog was $18.7 billion at the end of the quarter, up from $13.6 billion a year earlier.
The company does not pay a dividend. Instead, it prefers to put excess cash flow toward paying down the debt it took on to buy Logica: as of June 30, 2013, its long-term debt was $2.5 billion, which is equal to 22% of its market cap.
Thanks to its recent gains, the stock trades at a somewhat high 16.7 times CGI’s projected fiscal 2013 earnings of $2.16 a share. However, its 2014 earnings could rise to $2.70 a share. The stock trades at a more reasonable 13.3 times that estimate.
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