-- CIBC Capital Markets retained its neutral rating on the shares of CGI (GIB-A.TO) but reduced its price target to C$107 from C$112 on Wednesday, after the company reported its second quarter results.
"We were surprised to see the stock down double-digits today following a 2% revenue miss and in-line adj. EBIT and adj. EPS," said CIBC in a note dated April 29. Commentary around delayed decision making in Europe is "incrementally negative" and bookings were down 4% Y/Y, and CIBC expects this could be impacting sentiment.
"We calculate an organic revenue decline in FQ2 of 3.6% Y/Y, improved from a 4.5% Y/Y decline last quarter but down from 0.4% growth in the year-ago quarter. We remain on the sidelines as AI disruption risk continues to be an overhang for CGI, but we see upside from improving government spending, faster-than-expected growth in its AI-integrated IP, and M&A. We retain our Neutral rating and reduce our price target to $107 (prior $112) as we slightly reduce our revenue estimates to reflect an incrementally weaker demand environment," CGI added in conclusion.
Among key points, CIBC noted CGI is seeing delayed decision making in Europe. The company cited a weaker economy in Germany, slower government bookings in Finland, and uncertain manufacturing demand in France, CIBC noted. CIBC expects the conflict in the Middle East is a factor, with demand uncertainty in impacted verticals including manufacturing and airlines, as well as some impact to hardware supply chains.
CGI also noted pockets of growth including managed services wins, the government and financial services verticals, and IP and AI-led engagements.
CIBC noted CGI's U.S. Federal outlook was better than expected; that CGI is leveraging AI to reduce IP development costs and timelines; and that CGI's capital allocation priorities remain investing internally (including in AI), M&A, and buybacks.
Price: $88.27, Change: $-1.51, Percent Change: -1.68%