CGI INC. (GIB): what the price assumes

boothcheck covers CGI INC. (GIB) but does not put one priced-in number on it: here the defensible answer is the evidence rather than a point estimate. boothcheck publishes no house fair value, target price, or buy/sell rating. Narrative composed 2026-07-26.

Generated: 2026-08-25 · Source: https://boothcheck.com/report/GIB

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

The operating-margin figure is value-band context at year 12: derived from the framework's value band, a separate calculation — not part of the priced-in solve.

The price sits below what even a 5%/yr operating-profit decline would warrant; the inversion reports a bound, not a solved growth path.

Solve inputs: computed at a 8.1% cost of capital with 4% terminal growth over a 5-year stage.

How unusual the bet is: n/a

Valuation X-Ray

The price is supported by asset-based and earnings-power and relative-multiple and growth-DCF value. A value/asset-supported name, not a pure growth bet.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Families that justify the price: Asset, Earnings, Relative, Growth

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.2%); the inversion above states its own rate.

Per-Model Detail (n=13)

Solvency

Bullet Takeaways

• Roughly 31.50 billion Canadian dollars of contracted backlog sits behind this business, about 1.9 times a year's revenue, which means most of what CGI will bill next year is already signed.
• Organic growth is the problem, not profitability: revenue excluding currency moves grew 1.6% in the March quarter, down from 7.0% four quarters earlier, while the adjusted operating margin held at 16.6%.
• United States federal work, the segment most exposed to Washington budget decisions, shrank 11.1% year over year in the quarter, and third-quarter results are due July 29.

Bull Case

Start with what the market appears to believe. Around ten times company-wide operating profit, the shares sit below the level that a business steadily shrinking its operating profit by about 5% a year would justify. That is the implied read: not slow growth, not flat, but contraction. Now look at what the company actually filed.

Backlog at March 31, 2026 stood at 31.50 billion Canadian dollars, roughly 1.9 times a year of revenue, and it has risen in six of the last eight quarters. Over the trailing twelve months CGI signed 17.71 billion Canadian dollars of new work against what it billed, a book-to-bill of 108.4%, which is the ratio that matters in a contracting business: above 100 and the queue lengthens, below and it drains. United States commercial and state government work booked at 131.5% on the same trailing basis. A firm about to shrink does not usually sign a third more work than it delivers in its largest growth market.

Margins have not moved, which for an IT services business is the harder achievement. The adjusted operating margin came in at 16.6% for the March quarter against 16.5% a year earlier. Across the last eight quarters it has sat in a band between 16.1% and 16.6%. Wage inflation, a shifting delivery mix and currency have all moved through that period without dislodging it. Cash conversion tells the same story: operations produced 451.1 million Canadian dollars in the quarter and 2.47 billion over the trailing year, or 15.1% of revenue, with days sales outstanding unchanged at 40.

What CGI does with that cash is the part most easily missed. The weighted average diluted share count fell to 213.1 million from 227.2 million over the year, a reduction of 14.1 million shares, and the company spent 396.9 million Canadian dollars purchasing and cancelling Class A subordinate voting shares in the March quarter alone. Retiring more than six in every hundred shares in a single year, out of operating cash flow, in a business already trading near ten times operating profit, is the most direct form of value transfer available to a management team that thinks its own stock is cheap.

The business underneath is unglamorous and sticky. Roughly 94,000 consultants sit inside client organisations doing application maintenance, modernisation and business process work, sold alongside a portfolio of proprietary software the filing describes as highly configurable "business platforms as a service" that are embedded within our end-to-end service offerings. Nine operating segments spread across Europe, North America and Asia Pacific mean no single government, currency or industry decides the year. That structure caps how fast the company can grow. It also caps how fast it can fall over.

The honest bull summary is not that the methods have missed something. It is that all of them agree. Asset value, earnings power, peer multiples and discounted cash flow each land at or above where the stock trades, which is genuinely uncommon and usually means the market has priced a risk rather than made an error. The bull case is a bet on which risk, and on the queue of signed work being worth more than the market currently allows.

Bear Case

The assumption buried in this price is that the backlog converts on today's terms. Nearly 31.50 billion Canadian dollars of signed work sits in the queue, and the whole argument for a cheap-looking services business rests on that queue turning into billed effort at the current margin. The most fragile piece of it has a name and a number. United States federal revenue fell 11.1% year over year in the March quarter, and 11.8% across the first half, a decline the company reports as 7.1% before currency effects. Federal contracting is not a market where a supplier controls its own volume.

Growth elsewhere is fading rather than collapsing, which is arguably worse for a valuation argument. Stripping out currency, revenue grew 1.6% in the March quarter. The four preceding quarters were 3.4%, 5.5%, 7.0% and 3.3%. Bookings for the quarter came in at 4,314 million Canadian dollars against 4,485 million a year earlier, and three of the nine operating segments carried trailing book-to-bill ratios below 100%: the United Kingdom and Australia at 94.9%, Germany at 99.4%, and Finland, Poland and the Baltics at 90.1%. Those are queues getting shorter, not longer.

The returns are drifting too. Return on invested capital, as the company computes it, fell to 13.1% from 15.4% a year earlier. Net finance costs doubled, to 33.0 million Canadian dollars from 16.6 million. Cash on hand fell to 708.4 million from 1,099.5 million while net borrowings rose to 3,573.4 million from 3,237.4 million. None of that is alarming on its own. Together it describes a company funding an aggressive buyback partly from its balance sheet at a moment when its organic growth is the slowest it has been in two years, and on April 28, 2026 it enlarged its revolving credit facility to 2.50 billion Canadian dollars.

Then there is the technology question, which the company has answered in a way that cuts both directions. CGI markets an AI-powered delivery approach it says can deliver sustainable double-digit efficiency improvements to clients. In a business whose revenue is fundamentally billed effort, an efficiency improvement handed to the client is a price reduction with better branding. The bull reading is that CGI captures the saving through outcome-based pricing and wins share doing it. The bear reading is that the industry's incumbents are being asked to automate away the thing they sell, and that the pricing power to keep the difference has not yet been demonstrated in the revenue line.

Concentration in government work compounds it. The company lists among its own risks the legal and operational risks inherent in contracting with government clients, and its segment structure runs through the United States federal government, Canada, the United Kingdom and much of continental Europe. Public sector IT budgets move on political cycles that no amount of client relationship management influences.

Which brings the bear to its real shape. There is no valuation gap to point at here: every family of method lands at or above the current level, so the argument cannot be that the shares are expensive. The argument is that a 1.6% organic grower, whose largest single source of per-share improvement is retiring its own stock, whose returns on capital are declining and whose biggest problem segment is shrinking at double digits, may deserve to trade near ten times operating profit. Cheap is a judgement, and the market has been making it consistently.

Valuation

The striking thing about this price is what it fails to ask for. Around ten times company-wide operating profit, the shares sit below the level that a business shrinking its operating profit by roughly 5% a year would warrant. That is not a demanding embedded assumption. It is close to the absence of one, and it is the opposite of the situation most of this market presents.

All four families of method support the quotation, which is uncommon enough to be the finding. Asset value, earnings power, peer multiples and discounted cash flow each land at or above where the stock trades, with the peer-multiple approaches sitting furthest above it: a sector earnings multiple applied to this company's profits produces a figure well over the current level. That unanimity changes the question. It is no longer whether the price is too high. It is why a business earning a 16.6% adjusted operating margin on 4,156.2 million Canadian dollars of quarterly revenue trades where it does.

The answer is in the growth line rather than the profit line. Revenue excluding currency movements grew 1.6% in the March quarter, the slowest in two years, and United States federal work fell 11.1%. Ten times operating profit for a business growing organically at that pace is not obviously a mistake; it is a market judgement about how much of the backlog converts and at what price. The methods that reach highest are the peer-multiple ones, and they reach highest precisely because they compare CGI's profitability to a sector average without adjusting for the fact that the sector is growing faster.

Two things the filings make unambiguous are worth carrying into that judgement. The first is the queue: backlog of 31,501 million Canadian dollars at March 31, 2026, against trailing twelve month bookings of 17,713 million and a book-to-bill of 108.4%. Signed work of that size means the revenue question for the coming year is mostly about conversion and pricing, not about demand appearing. The second is what the profit turns into: 2.47 billion Canadian dollars of operating cash flow over the trailing twelve months, 15.1% of revenue, against 396.9 million spent retiring stock in a single quarter.

The balance sheet does not constrain any of it. Net borrowings measured the company's own way stood at 3,573.4 million Canadian dollars at the end of March, against a net-debt-to-capitalisation ratio of 26.3%, and the revolving facility was enlarged to 2.50 billion Canadian dollars a month later. A services business carries almost no fixed assets and converts most of its profit to cash within 40 days of billing, which is why leverage at this level is a financing choice rather than a constraint. The buyer at today's level is underwriting conversion of the backlog and a management team that has been shrinking the share count faster than the business has been growing.

Catalysts

Third quarter fiscal 2026 results arrive on July 29, 2026, announced a week ahead of time. Three lines in that report carry more information than the headline. Constant currency revenue growth has fallen in each of the last three quarters and the March quarter printed 1.6%; whether it stabilises there or keeps sliding is the single most decisive number in the release. Bookings, which fell year over year in the March quarter, are the second. The United States federal segment, down more than a tenth on the year, is the third.

Sentiment has already begun to reflect the growth question. TD Securities cut its rating on the shares to Hold from Buy on July 24, 2026, citing a high bar. Downgrades on valuation grounds mean little in either direction; a downgrade on execution grounds ahead of a print that will show whether organic growth has bottomed is a more specific signal about what the sell side expects.

On the commercial side, the company has been visible. CGI announced the launch of Mosaic on July 8, 2026, partnered with the Commonwealth of Massachusetts to deliver a new statewide financial management system on July 9, 2026, and added Databricks Brickbuilder specialisations in public sector and generative AI work on July 19, 2026. State and local government contracts are the counterweight to federal softness, and the United States commercial and state government segment booked at 131.5% of what it billed over the trailing year. Whether that segment can absorb the federal decline is the question the next several quarters answer.

Peer Cohorts (Per Segment, With Filing Citations)

Core business (reported)

• ANDE (ANDERSONS, INC.)
• FY2025 10-K: …risk management and origination services to its customers and ethanol plants within the Renewables segment for which it collects fees. The Company competes in the sale of commodities and nutrient inputs with other public and private grain brokers, farm retailers, elevator operators and farmer owned cooperatives. Some…
• FY2025 10-K: …moved between the Agribusiness and Renewables segments. All prior period segment information has been recast to conform to the current year presentation. The agricultural commodity-based business is one in which changes in selling prices generally move in relationship to changes in purchase prices. Therefore,…
• TOL (Toll Brothers, Inc.)
• FY2025 10-K: …- net, partially offset by lower losses from unconsolidated entities and lower gross margin from land sales. The decrease in other income - net was primarily due to lower interest income as well as gains recognized in fiscal 2024 that did not recur in fiscal 2025. Specifically, in the fiscal 2024 period, we…
• FY2025 10-K: …and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. ASC 740 requires a company to recognize the financial statement effect of a tax position…
• MHK (MOHAWK INDUSTRIES, INC.)
• FY2025 10-K: …(loss) Operating income for 2025 was $489.8 million compared to operating income of $693.5 million for 2024. The change was primarily attributable to higher input costs of approximately $188 million; higher restructuring, acquisition and integration-related, and other costs of approximately $87 million; lower sales…
• FY2025 10-K: …Company's business. Even if integration occurs successfully, failure of the acquisition to achieve levels of anticipated sales growth, profitability, or otherwise perform as expected, may result in goodwill or other asset impairments or otherwise have a material adverse effect on the Company's business. Finally,…
• CP (CANADIAN PACIFIC KANSAS CITY LTD/CN)
• FY2025 10-K: …accounting of $86 million ($62 million after deferred income tax recovery of $24 million), including costs of $82 million recognized in "Depreciation and amortization", $1 million recognized in "Purchased services and other" related to the amortization of equity investments, $5 million recognized in "Net interest…
• FY2025 10-K: …other expense was primarily due to: • lower third-party locomotive costs due to insourcing and a new parts agreement embedded in "Materials" effective in the fourth quarter of 2024; • a decrease in casualty incident costs; • lower acquisition-related costs; and • lower terminal service costs. This decrease was…
• NCLH (NORWEGIAN CRUISE LINE HOLDINGS LTD.)
• FY2025 10-K: …providers, theme parks and packaged travel experiences. Competition within the cruise industry is driven by factors such as pricing, itinerary and destination offerings, ship features, service levels, marketing and travel advisor relationships. Competitive actions, including changes in pricing, capacity, deployment…
• FY2025 10-K: …specialty dining, Wi-Fi, valet laundry, gratuities and more. Seasonality Our operations are seasonal and results for interim periods are not necessarily indicative of the results for the entire fiscal year. Historically, demand for cruises has been strongest during the Northern Hemisphere's summer months, which has…
• OC (Owens Corning)
• FY2025 10-K: …efforts, we may lose market share. Our inability to effectively compete could result in the loss of customers and reduce the sales of our products, which could have a material adverse impact on our business, financial condition and results of operations. 9 Table of Contents ITEM 1A. RISK FACTORS (continued) Although…
• FY2025 10-K: Interest, Taxes, Depreciation and Amortization From Continuing Operations Adjusted EBITDA from continuing operations is a non-GAAP measure that excludes certain items that management does not allocate to our segment results because it believes they are not representative of the Company's ongoing operations. Adjusted…
• SEB (Seaboard Corporation)
• FY2025 10-K: …products are directly affected by both domestic and worldwide supply and demand for commodities and competing products, all of which are determined by constantly changing market forces. Operating income increased for the year ended December 31, 2025, compared to 2024 primarily due to an increase of $31 million in…
• FY2025 10-K: Other commitments ​ 47 ​ 1 ​ 1 ​ 1 ​ 1 ​ 6 ​ 57 Total unrecognized non-cancelable commitments ​ $ 1,435 ​ $ 281 ​ $ 162 ​ $ 156 ​ $ 153 ​ $ 1,208 ​ $ 3,395 (a) The Pork segment has contracts with third parties for the purchase of hogs to support its operations. For variable costs, the amounts are based on projected…
• EXPD (EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.)
• FY2025 10-K: …that we, in turn, charge our customers, in addition to fees that we charge our customers for ancillary services. Such ancillary services we provide include preparation of shipping and customs documentation, packing, crating, insurance services, and the preparation of documentation to comply with local export laws.…
• FY2025 10-K: …and assessing the performance of the Company's business segments. Operating income is the primary measure of business segments' profit or loss that is most consistent with the measurement principles of U.S. GAAP and no items below operating income are allocated to segments. The CODM uses operating income to review…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.