CGI (TSX:GIB.A): Assessing Valuation After Landmark UK Contract and Capital Return Moves

CGI (TSX:GIB.A) just secured a contract with His Majesty's Revenue and Customs in the UK worth up to PS250 million over five years. This deal places CGI in a central role, supporting critical digital infrastructure for HMRC.

See our latest analysis for CGI.

CGI’s string of headlines lately, including the landmark HMRC contract, a 13% dividend hike, and a share buyback, hasn’t been enough to turn the tide on the stock’s slump. After peaking earlier in the year, the share price has fallen 22.25% year-to-date. The 5-year total shareholder return of 34.27% points to solid long-term value even as near-term momentum fades.

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The stock’s recent drop gives investors a rare moment to reconsider CGI’s valuation and long-term prospects. However, does the current price reflect an undervalued opportunity, or has the market already anticipated future growth?

Most Popular Narrative: 25.1% Undervalued

With a narrative-driven fair value of CA$163.58 versus CGI’s last close at CA$122.51, expectations for the company’s future performance run high compared to where the market is pricing the stock right now.

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.

Read the complete narrative.

Curious how this bold valuation emerges? There is one pivotal assumption the narrative depends on: analysts are betting on a step-change in both margin expansion and market appetite for CGI’s future earnings. Want to know exactly what future profit profile is required to justify this steep upside? The answer is buried in the numbers and projections the narrative uses to set CGI's fair value.

Result: Fair Value of $163.58 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, ongoing integration challenges and exposure to government contract cycles could still undermine CGI’s profit growth and revenue stability in the coming quarters.

Find out about the key risks to this CGI narrative.

Build Your Own CGI Narrative

If you’d rather dig into the data yourself or see the story from a different angle, you can shape your own view in just minutes. Do it your way

A good starting point is our analysis highlighting 4 key rewards investors are optimistic about regarding CGI.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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