Company Reports

CGI's third-quarter constant-currency revenue growth of 1% and operating margin of 16% were both in line with our expectations. More importantly, US federal revenue expanded 3% this quarter, marking a return to positive growth after two consecutive quarters of double-digit decline.

CGI is a global IT-services company with an outsize exposure to governments. Compared with private-sector customers, which make IT spending decisions based on the prevailing macro sentiment, governments have more-stable spending patterns. We see this affecting CGI’s performance both positively and negatively. When IT demand boomed during the pandemic, CGI’s growth was mostly in line with or slightly below that of its peers. However, as overall demand started to fade in late 2024, the trend reversed and CGI became one of the fastest-growing IT-services names. That said, near-term volatility with government IT spending is still possible as the budgeting process becomes more unpredictable.

CGI reported second-quarter constant-currency revenue growth of 1.6%, slightly lagging its peers. Management attributed the revenue underperformance to customer delays in decision-making. Operating margin of 16% was stable from last quarter.

CGI is a global IT-services company with an outsize exposure to governments. Compared with private-sector customers, which make IT spending decisions based on the prevailing macro sentiment, governments have more-stable spending patterns. We see this affecting CGI’s performance both positively and negatively. When IT demand boomed during the pandemic, CGI’s growth was mostly in line with or slightly below that of its peers. However, as overall demand started to fade in late 2024, the trend reversed and CGI became one of the fastest-growing IT-services names. Given that government revenue tends to be stickier than revenue from private-sector customers, we believe CGI will continue to experience less cyclicality than other IT-services firms.

CGI's first-quarter constant-currency revenue growth of 3% and operating margin of 15% were in line with expectations. Segment results were mixed, with US federal revenue seeing a double-digit decline due to the government shutdown in 2025, offset by solid performance in Europe.

CGI is a global IT-services company with an outsize exposure to governments. Compared with private-sector customers, which make IT spending decisions based on the prevailing macro sentiment, governments have more-stable spending patterns. We see this affecting CGI’s performance both positively and negatively. When IT demand boomed during the pandemic, CGI’s growth was mostly in line with or slightly below that of its peers. However, as overall demand started to fade in late 2024, the trend reversed and CGI became one of the fastest-growing IT-services names. Given that government revenue tends to be stickier than revenue from private-sector customers, we believe CGI will continue to experience less cyclicality than other IT-services firms.

CGI ended fiscal 2025 on a strong note, with fourth-quarter revenue up 6% and full-year revenue up 5% in constant currency. Fiscal 2025 gross margin and adjusted operating margin were both flat compared with last year, highlighting pricing pressure as enterprise IT demand takes time to recover.

CGI is a global IT-services company with an outsize exposure to governments. Compared with private-sector customers, which make IT spending decisions based on the prevailing macro sentiment, governments have more-stable spending patterns. We see this affecting CGI’s performance both positively and negatively. When IT demand boomed during the pandemic, CGI’s growth was mostly in line with or slightly below that of its peers. However, as overall demand started to fade in late 2024, the trend reversed and CGI became one of the fastest-growing IT-services names. Given that government revenue tends to be stickier than revenue from private-sector customers, we believe CGI will continue to experience less cyclicality than other IT-services firms.

We've taken a fresh look at CGI, a Canadian IT-services firm with an outsize exposure to government contracts. The company differs from other IT providers by following a balanced delivery model that locates most consultants in client proximity instead of overseas delivery centers.

CGI is a global IT-services company with an outsize exposure to governments. Compared with private-sector customers, which make IT spending decisions based on the prevailing macro sentiment, governments have more-stable spending patterns. We see this affecting CGI’s performance both positively and negatively. When IT demand boomed during the pandemic, CGI’s growth was mostly in line with or slightly below that of its peers. However, as overall demand started to fade in late 2024, the trend reversed and CGI became one of the fastest-growing IT-services names. Given that government revenue tends to be stickier than revenue from private-sector customers, we believe CGI will continue to experience less cyclicality than other IT-services firms.

CGI reported solid financial results for its third quarter of fiscal 2025, with the top line growing 11% to $4.09 billion and adjusted operating margins contracting 10 basis points year over year to 16.3% as recent business acquisitions led to some margin dilution.

CGI reported mixed financial results to close out its second quarter of fiscal 2025, with sales expanding 8% year over year to $4 billion while adjusted operating margins contracted 30 basis points to 16.5%.

Canadian IT services firm CGI reported strong results for its first quarter of fiscal 2025, with sales growing 5% year over year to $3.79 billion and diluted EPS expanding 8% year over year to $1.97.

CGI is a leading global IT-services firm, catering a bit more to governmental agencies than its peers, providing managed IT, consulting, and intellectual property, or IP, solutions. We believe that CGI benefits from strong switching costs and intangible assets, which lead us to assign the firm a narrow economic moat rating. Despite the macroeconomic headwinds, CGI has posted steady revenue due to long-term contracts with many of its clients. We think such stability will continue with the help of CGI’s switching costs and intangible assets, which both work to create stickiness among existing customers.

CGI is a leading global IT-services firm, catering a bit more to governmental agencies than its peers, providing managed IT, consulting, and intellectual property, or IP, solutions. We believe that CGI benefits from strong switching costs and intangible assets, which lead us to assign the firm a narrow economic moat rating. Despite the macroeconomic headwinds, CGI has posted steady revenue due to long-term contracts with many of its clients. We think such stability will continue with the help of CGI’s switching costs and intangible assets, which both work to create stickiness among existing customers.

CGI finished off fiscal 2024 with a set of strong financial results, with the firm's top line growing 4% year over year and its adjusted operating margin expanding 10 basis points from a year ago to 16.4%.

We maintain our CAD 137 fair value estimate for narrow-moat CGI after the firm reported strong third-quarter financial results largely in line with our expectations. Forward-looking metrics, such as bookings, showed strength, underscoring the enduring demand for CGI’s IT services expertise despite the tough macro backdrop. Despite the strong bookings, we believe that the near-term picture for CGI, as well as its other IT services peers, remains cloudy as discretionary customer spending on IT services remained muted. As the macro conditions gradually improve, we expect the demand rebound to be accelerated by organizations embarking on AI-related projects. With shares trading slightly up after the earnings report, we view them as fairly valued.

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.

CGI is a leading global IT-services firm, catering a bit more to governmental agencies than its peers, providing managed IT, consulting, and intellectual property solutions. We believe that CGI benefits from strong switching costs and intangible assets, which lead us to assign the firm a narrow economic moat rating. Despite the macroeconomic headwinds, CGI has posted steady revenue due to long-term contracts with many of its clients. We think such stability will continue with the help of CGI’s switching costs and intangible assets, which both work to create stickiness among existing customers.

We maintain our CAD 137 fair value estimate for narrow-moat CGI after the firm kicked off fiscal 2024 with a strong set of results, combining top-line growth with an increased emphasis on operational discipline, as evidenced by the firm’s cost optimization program. With forward-looking metrics such as bookings showing strength, we think a mixture of an improving macro as well as client demand for AI solutions will provide positive tailwinds for CGI’s near-term sales. At the same time, we expect management’s cost optimization program to provide a margin uplift in the medium to long term. With shares trading slightly up after the earnings report, we view them as marginally overvalued.