CGI Beats Q1 Estimates But Stock Tumbles 6% as Founder Defends 'Undervalued' Shares at 50th Anniversary AGM

January 28, 2026 · by Fintool Agent

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Cgi Inc.+0.09% delivered Q1 FY2026 results that beat analyst expectations, but shares plunged nearly 6% to 52-week lows as investors question the IT services giant's growth trajectory amid European economic headwinds. At the company's 50th anniversary annual general meeting held virtually from Montreal, founder Serge Godin took the unusual step of directly addressing shareholder frustration over the stock's 30% decline from recent highs. 1

The disconnect between CGI's operational performance and its stock price has become increasingly stark. Revenue grew 7.7% to CAD 4.08 billion, adjusted EPS climbed 7.6% to CAD 2.12, and the company generated a record CAD 872 million in operating cash flow—yet shares closed at $86.35, down from a 52-week high of $122.79. 2

Q1 FY2026: Beating Expectations Wasn't Enough

CGI's first quarter results for fiscal 2026 (ending December 31, 2025) exceeded consensus on both revenue and earnings, marking another quarter of consistent execution from the Montreal-based IT services company.

CEO François Boulanger highlighted strength in modernization and managed services, noting that AI solutions are increasingly embedded in client engagements: "The CGI team's discipline in managing our business and delivery quality generated record-high cash from operations of $872 million, continuing to deepen CGI's position as an active consolidator."

The 21.4% cash flow margin—the highest in company history—provides significant firepower for CGI's capital allocation strategy at a time when management believes the stock is materially undervalued. 13

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Founder Godin: "The Stock Went Down From $171 to $120-ish... Nothing Related to CGI"

In a rare moment of candor at the AGM, founder Serge Godin directly addressed a shareholder question about why the stock price hasn't reflected CGI's strong fundamentals. His response was both defensive and confident, pointing to external factors and reiterating the company's countercyclical resilience. 1

"So it is a question which would deserve a couple of hours of discussion," Godin began. "When you look, there was an article this morning, the stock went down from CAD 171 to CAD 120-ish. And so nothing in what is related to CGI, because the fundamentals we apply in managing CGI, it is exactly to grow across all those uncertainties." 2

Godin attributed the stock weakness to two primary factors:

1. AI Disruption Fears: Last year saw a "hype related to AI" that created uncertainty about IT services companies, though Godin noted "that hype is disappearing" as companies recognize AI helps rather than threatens providers like CGI. 3

2. European Economic Weakness: With 60% of revenue from Europe, CGI faces headwinds from stagnant economies—Germany's GDP growth was flat at 0% in 2025, while France managed only 1.4-1.5%. 4

But Godin framed these challenges as opportunities, pointing to CGI's countercyclical managed services model: "Every time you have tougher market condition, the client, they are gonna try to digitize their operation, to continue to innovate, and then but they need to reduce their costs to free up some money to digitize themselves." 5

Four-Stream Strategy: Built for Uncertainty

CGI's value creation model centers on four complementary streams designed to perform across economic cycles—a strategy that becomes particularly relevant as European IT spending remains constrained. 1

The managed services stream—which includes large outsourcing contracts and IP solutions—generated a 117% book-to-bill ratio in Q1, demonstrating client demand for cost optimization and operational efficiency. This segment now represents approximately 60% of CGI's revenue and provides recurring, predictable cash flows. 2

Godin emphasized the historical pattern: "Look at the CGI history over years. We've developed the company much more rapidly in a period of uncertainties... Look at all of that. Today we have 60% of our business which is coming from recurring revenue." 3

On acquisitions, management revealed they have identified 1,000 potential targets across 40 countries—a pipeline that becomes more attractive when valuations compress. Godin noted that CGI paid just 57% of revenue for transformational deals like AMS and Logica during previous downturns, versus 2-3x revenue multiples in strong markets. 4

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Capital Returns Accelerate: 19M Share Buyback Renewed

The board approved a renewal of CGI's normal course issuer bid (NCIB) program authorizing the purchase of up to 19 million shares through February 2027. The company also declared a quarterly dividend of CAD $0.17 per share, payable March 20, 2026 to shareholders of record as of February 18, 2026. 1

In Q1 alone, CGI deployed CAD 614 million in capital returns through share repurchases and dividends. The aggressive buyback posture reflects management's view that the stock is materially undervalued at current levels. 2

Executive Chair Julie Godin stated: "CGI's stock is undervalued. So we plan to remain very active in our share repurchase program while these conditions persist." 7

50 Years: From Basement Startup to Global IT Leader

The AGM marked a symbolic milestone—50 years since Serge Godin founded CGI in the basement of his Montreal home in 1976. What began with a desire to "create a consulting firm where employees would feel at home" has grown into one of the world's largest IT services companies with nearly 100,000 employees across 40+ countries. 8

One distinctive cultural element: 88% of CGI employees are shareholders, collectively holding over 8% of the company's shares worth CAD 2.1 billion. This makes employees the second-largest shareholder group, creating alignment between management, workers, and investors. 9

"This is why we call our employees CGI partners," Godin explained. "We wanted them to be entrepreneurs and to have a say in the future of their company... Their interests are closely aligned with yours as investors." 10

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Market Reaction and Analyst Sentiment

Despite the earnings beat, GIB shares fell 5.7% on January 28 to close at $86.35—within striking distance of the 52-week low of $83.78. The stock is now down nearly 30% from its 52-week high of $122.79 and trades at approximately 14x forward earnings.*

Analyst sentiment remains mixed. Jefferies downgraded CGI to Hold in November 2025, cutting its price target from $105 to $81, while RBC Capital maintains an Outperform rating with targets as high as $175-192 (in CAD). The consensus price target of ~$113 implies roughly 31% upside from current levels.*

The divergence reflects broader uncertainty about IT services spending in 2026, particularly in Europe. CGI's heavy exposure to government (37% of revenue) and financial services (22%) provides some defensive characteristics, but discretionary consulting work remains under pressure.

What to Watch

Near-term catalysts:

• Q2 FY2026 results (expected late April/early May)
• European economic data and IT spending trends
• M&A activity—management indicated an active pipeline at attractive valuations
• Pace of share repurchases under the renewed 19M share authorization

Risks:

• Continued European economic weakness (60% of revenue exposure)
• U.S. federal government shutdown impact on Federal segment
• AI disruption concerns, though management views this as opportunity
• Multiple compression across IT services sector

CGI's Q1 results demonstrate the company's execution remains strong, but the stock tells a different story. At 14x forward earnings with a 21%+ cash flow margin and an aggressive buyback program, management is betting investors will eventually recognize the value. Whether the market agrees depends largely on factors outside CGI's control—European growth, AI sentiment, and broader IT services multiple re-rating.

Related

• Cgi Inc.+0.09%
• Cognizant Technology Solutions-0.47%
• Accenture+0.93%
• Ibm-0.82%
• DXC Technology+0.14%

*Values retrieved from S&P Global and third-party sources.