As one of Canada’s premier tech stocks, CGI Inc. (TSX:GIB.A) offers both a long, strong history and an exciting future that’s still filled with many opportunities. That is why I remain extremely bullish on CGI stock.
Let’s review the company, touching upon its past and on why I think the future is still bright for CGI stock.
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CGI – A strong history
CGI Group was founded in 1976 by 26-year-old Serge Godin, who initially set up shop in his basement with co-founder Andre Imbeau. The company was founded on two principles, which are still a core part of what CGI is all about – become a leader in information systems and business consulting, and drive value for all stakeholders.
And this is what CGI has, in fact, been doing. Today, the company has grown into a global leader in its industry, with $14.7 billion in revenue in fiscal 2024, and a market capitalization of $33.7 billion. And this growth has made investors a lot of money over the years.
In the last five years, the growth and success has continued. In fact, CGI has continued to grow nicely, driving profit and cash flows. Since fiscal 2020, revenue has increased 21% and earnings per share 56% to $7.66 in fiscal 2024. This performance has been driven by acquisitions as well as efficiency gains. During this same time period, operating cash flow increased 28% to $629 million.
CGI introduces a dividend
The company’s prime focus for its capital allocation is still on growth and investing in the business. But it’s very telling that a decision was made last year to initiate a dividend. Essentially, CGI’s business is such a cash-generating one that it allows the company to continue with its acquisition strategy as well as pay a dividend. In fact, its operating cash flow was 17.1% of its revenue in the company’s latest quarter.
While the dividend yield is low, at a mere 0.41%, it is a reflection of the strength of CGI’s business and its drive to provide shareholder returns. With operating cash flow of $650 million in its latest quarter and a strong balance sheet, there is room for the company to continue to acquire whenever it sees a good opportunity for accretive acquisitions.
Merger activity picks up in recent months
According to CGI’s management, the environment for mergers and acquisitions has really improved in recent months. Consequently, the company’s acquisition activity has picked up. This has been due to the fact that there’s less competition, less demand for acquiring in this space. In turn, this has driven down valuations, thus making more deals attractive to CGI.
Of course, deals have to be accretive to CGI. The company’s track record of doing just that can give us confidence. For example, more than 10 years ago, CGI’s earnings before interest and taxes (EBIT) margins had sunk below 10%. In the latest quarter, they came in at 15.6%. The improvement is a testament to the value that the company is extracting and creating in its growth strategy.
The bottom line
In summary, I believe that CGI stock remains a buy in 2025. There’s still a lot of opportunity to consolidate the global IT industry. CGI remains strategically and financially prepared to continue to do so successfully.
