Last Update 05 Nov 25
Fair value Decreased 1.95%Analysts have reduced their average price target for CGI from approximately C$167 to C$164, citing tempered growth expectations. Recent research highlights both ongoing sector opportunities and a more cautious outlook on valuation.
Analyst Commentary
Recent analyst updates reflect a reassessment of CGI's valuation and growth drivers. The firm's outlook is shaped by both optimistic and cautious perspectives on its market position and strategic initiatives.
Bullish Takeaways- Analysts remain positive on CGI's ability to capitalize on the growing potential of generative artificial intelligence. They view this development as a significant opportunity for long-term expansion.
- Resolution of previous tariff uncertainties is expected to provide a clearer operational environment, which could help reverse recent organic declines in the business.
- Some maintain their favorable ratings despite reduced price targets, which signals confidence in the company's underlying execution and resilience in the sector.
- CGI's diversified service offerings are considered well-positioned to benefit from ongoing digital transformation trends across industries.
- Lowered price targets reflect tempered expectations for CGI's near-term growth, as current valuations are seen as less compelling by some analysts.
- There is increased caution regarding the pace of organic recovery, particularly as specific sector headwinds persist.
- Ongoing recalibration of ratings and targets suggests the market may require clearer evidence of accelerating revenue growth before rewarding the shares with higher multiples.
What's in the News
- CGI secured a 10-year contract with the State of New Jersey for the continued development and support of the State Integrated Recovery Operations Management Systems (SIROMS). This initiative will enhance disaster recovery and fund management for the state. (Key Developments)
- The renewed New Jersey partnership will provide ongoing innovation in natural disaster technology and accountability, enabling efficient distribution of more than $7 billion in recovery funds and supporting thousands of residents. (Key Developments)
- CGI announced a new multi-year contract with the Texas Comptroller of Public Accounts to implement a cloud-based enterprise financial management system. This system will replace multiple legacy state systems and improve analytics and compliance. (Key Developments)
Valuation Changes
- Fair Value Estimate has decreased slightly from CA$166.83 to CA$163.58, reflecting more conservative expectations.
- Discount Rate has increased marginally from 8.28% to 8.31%, suggesting a modest rise in perceived risk or required return.
- Revenue Growth forecast has risen minimally from 6.14% to 6.16%, pointing to a marginally stronger growth outlook.
- Net Profit Margin projection has edged down from 11.92% to 11.91%, indicating expectations for stable profitability levels.
- Future Price/Earnings (P/E) Ratio has declined from 19.78x to 19.40x, signaling modestly lower valuation expectations for future earnings.
Key Takeaways
- Accelerating digital transformation and AI integration increase demand for CGI's high-margin services, driving operational efficiency and growth across public and private sectors.
- Strong cybersecurity focus and successful acquisitions strengthen CGI's government and financial services portfolio, ensuring robust revenue visibility and operational synergies.
- Exposure to macroeconomic delays, client budget cycles, acquisition integration risks, rising compliance costs, and tech disruption threatens CGI's revenue stability, margins, and long-term growth.
Catalysts
About CGI- Provides information technology (IT) and business process services.
- The ongoing acceleration in digital transformation initiatives-particularly in cloud migration, AI-driven automation, and data analytics-continues to boost client demand for CGI's managed services and proprietary IP across both public and private sectors, which is likely to drive sustained revenue growth and an increasing proportion of higher-margin recurring revenue.
- Rising global cybersecurity risks and heightened regulatory demands are translating to strong, durable demand for CGI's data protection and security-focused offerings, supporting a robust pipeline in government and financial services verticals and providing a multi-year tailwind for bookings and backlog.
- Expanding integration of generative AI and automation not only enhances CGI's own IP solutions (now with 40% of IP revenue AI-enabled), but also enables more outcome-based client engagements, leading to operational efficiencies, margin expansion, and improved earnings as AI adoption scales within both CGI and its clients.
- Successful execution of recent acquisitions (BJSS, Daugherty, Aeyon) is expected to unlock revenue synergies, leverage operational efficiencies, and, upon full integration, generate further EBIT margin expansion and EPS accretion.
- The company's robust $30.6 billion backlog, increasing book-to-bill ratios in higher growth segments (especially IP and managed services), and active pipeline of large digital modernization/legacy transformation projects position CGI for long-term revenue visibility and sustained free cash flow generation.
CGI Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming CGI's revenue will grow by 4.8% annually over the next 3 years.
- Analysts assume that profit margins will increase from 11.0% today to 12.8% in 3 years time.
- Analysts expect earnings to reach CA$2.3 billion (and earnings per share of CA$10.5) by about September 2028, up from CA$1.7 billion today.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.5x on those 2028 earnings, up from 17.2x today. This future PE is greater than the current PE for the US IT industry at 17.2x.
- Analysts expect the number of shares outstanding to decline by 2.09% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 8.13%, as per the Simply Wall St company report.
CGI Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- Continued macroeconomic uncertainty and delays in client decision-making, particularly for larger enterprise engagements and in manufacturing sectors exposed to tariffs, may result in prolonged softness in organic revenue growth, especially in key European markets, impacting top-line performance.
- Heavy reliance on government and large enterprise contracts exposes CGI to budgetary cycles, political risks, and competitive rebidding pressure, as reflected in ongoing challenges and lower volumes in U.S. federal business process outsourcing (BPO) and visa-driven contracts, threatening revenue stability and margin growth.
- Ongoing integration of recent acquisitions (e.g., BJSS, Daugherty) is suppressing margins in the short term and represents operational risk; slower-than-expected realization of synergies or integration-related disruptions may further pressure underlying EBIT margins and net earnings.
- Rising regulatory and compliance costs, especially with closing mergers in regions like France and the need to comply with evolving data sovereignty and cybersecurity requirements, may increase operating expenses and limit cross-border project opportunities, negatively affecting net margins and earnings growth.
- Heightened competitive pressures from global IT services leaders and rapid adoption of no-code/low-code automation or direct-client AI solutions could erode CGI's traditional IT consulting revenue streams and reduce billing opportunities, posing risks to sustained revenue growth and profitability over the long term.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of CA$171.167 for CGI based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$185.0, and the most bearish reporting a price target of just CA$137.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$17.9 billion, earnings will come to CA$2.3 billion, and it would be trading on a PE ratio of 19.5x, assuming you use a discount rate of 8.1%.
- Given the current share price of CA$133.13, the analyst price target of CA$171.17 is 22.2% higher.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
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Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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