CGI Earnings: Revenue Growth Is Slowing, but Our Long-Term View Is Unchanged

We are maintaining our CAD 137 fair value estimate for narrow-moat CGI after the release of fiscal second-quarter results. Bookings, a forward-looking metric, came down sequentially in what can be a seasonally slower quarter, and the book/bill ratio declined to roughly 100% from 116% last quarter. Our read is that the short-term revenue outlook remains a bit cloudy as some industries remain cautious in their IT spending and certain larger engagements get delayed. However, we think the macro backdrop has bottomed and spending should eventually improve, even if short-term predictions remain difficult. We are decreasing our short-term revenue outlook slightly while leaving our longer-term growth expectations in place. Also, additional commentary from management about reinvesting a portion of the current margin uplift in the business led us to slightly moderate our long-term margin assumption. The combined effect is an unchanged fair value estimate of CAD 137 per share, although changes in exchange rates move our US dollar-denominated fair value estimate to $99 per share from $102. We view the shares as fairly valued.