Gartner, Inc. (NYSE: IT) is a management consulting company with expertise in technological research. Its insights and guidance help companies in making quick and effective decisions. The $18.9-billion company has headquarters in Stamford, CT.
Since its inception in 1979, the company has made a mark for itself in the research and advisory space. In the past 10 years, its contract value has increased 15% CAGR, and its free cash flow has expanded 19% CAGR. Exiting 2021, it had operations in nearly 100 countries with more than 16,000 associates.
On TipRanks, Gartner has a Moderate Buy consensus rating based on three Buys and four Holds. IT’s average price target is pegged at $319.57, suggesting 36.22% upside from current levels. Its five-year performance is impressive, with shares surging 91.8%. However, the stock has fallen 27.1% so far this year.
A brief discussion on the company’s key tailwinds and headwinds might help investors understand its prospects.
Diversified Business
Gartner’s exposure to multiple end markets and geographies adds to its investment appeal. Presently, its total addressable market is worth $200 billion, including technology ($55 billion), supply chain ($23 billion), marketing ($25 billion), sales ($38 billion), and finance ($24 billion).
In contrast, the company’s contract value (at the end of Q1 2022) is around $4.2 billion. The huge gap between the market size and contract values signifies an abundance of growth opportunities waiting to be tapped by the company.
Also, the company’s foothold is solid in the United States and Canada, Europe, Middle East & Africa (EMEA), and other countries. In Q1 2022, Gartner’s revenues grew 15.3% year-over-year in the United States and Canada, 12.7% in EMEA, and 12.6% in other countries.
Growth Opportunities
In addition to diversity, high renewal rates and recurring sources of revenue are added advantages for Gartner. It is worth noting that > 90% of the company’s Research segment revenue is based on subscriptions or is recurring in nature.
Also, effective use of its cash resources, for building its organic and inorganic growth opportunities, will be beneficial for Gartner. In 2021, the company used $22.9 million for the acquisition of Pulse Q&A Inc. and $59.8 million for capital expenditures.
Further, it keeps its shareholders happy through rewards in the form of share buybacks. In 2021, the company bought back shares worth $1,655.5 million.
Projections
Gartner anticipates total revenues to be at least $5,275 million in 2022 (provided in May 2022), higher than the $5,175 million stated in February. Revenues of the Research segment are forecast to be $4,575 million, up from the $4,550 million stated earlier.
Adjusted earnings are forecast to be $7.80 per share versus the $6.74 expected previously.
For the medium term, the company expects total revenues to increase at least 10%, with Research segment sales predicted to grow in the 12%-16% range. Adjusted earnings are likely to expand greater than or equal to EBITDA growth.
Near-Term Headwinds
Unfavorable movements in foreign currencies can impact Gartner. For 2022, it expects forex woes to hurt the total revenue by $55 million, the Research segment sales by $40 million, and adjusted earnings by $0.09 per share.
Also, an increase in costs and expenses can pressure profits and margins. In Q1 2022, the company’s cost of services and product development and selling, general and administrative expenses increased 12.7% and 26.8% year-over-year, respectively.
Wall Street’s Take
A few days ago, Toni Kaplan of Morgan Stanley reiterated a Hold rating on Gartner while decreasing the price target to $300 (27.88% upside potential) from $316.
Another analyst, George Tong of Goldman Sachs kept a Buy rating intact on Gartner while lowering the price target to $340 (44.93% upside potential) from $382.
As per TipRanks, financial bloggers are 100% Bullish on IT, compared with the sector average of 66%. The hedge fund confidence is Very Positive on Gartner, and investors’ sentiment is Positive.
However, the insider confidence signal on the stock is Very Negative. Also, the company’s main risk categories are Legal & Regulatory and Macro & Political, which account for six risks each of the total 29 risks identified for the stock.
Conclusion
With solid prospects, Gartner seems to be an ideal investment option for investors willing to hold it for the long term. Further, its upwardly revised projections and declines in share price might attract risk-takers or short-term investors despite the presence of headwinds.
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