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Gartner Retains Competitive Edge Despite Inherent Risks

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On Sep 12, we issued an updated research report on information technology research and advisory firm, Gartner, Inc. (IT - Free Report) .

Gartner offers timely, thought-provoking and comprehensive analysis known for its high quality, independence and objectivity. This unbiased, pragmatic and actionable insight usually helps organizations to save thousands of dollars through appropriate actions. In order to keep abreast of the new developments in the dynamic and complex industry and take well-informed decisions to maximize returns on IT capital investments, business enterprises as well as government agencies solicit Gartner’s research and consultancy services. This offers a strong value proposition for the company.

Growth Drivers

Over the years, Gartner research reports have become indispensable tools for diverse companies across different sectors, strengthening its leading position in the market. Using advanced technologies to collect and analyze troves of data, Gartner draws on unique data assets and deep domain expertise to provide key insights and decision support solutions for informed decision-making process. These insights are typically drawn from a critical fact base, collated from interactions with various clients, one-on-one client communications and vendor briefings.

Gartner has a recurring revenue stream with 75% of its total revenues generated through subscription and long-term contracts. In addition, the company has a large and diverse addressable market with low customer concentration that mitigates operating risks. Operating in an industry with low barriers to entry, Gartner has an integrated research and consulting team designed to best serve its clients’ needs. This enables it to have a competitive advantage over its rivals. With diligent execution of operational plans, Gartner has recorded double-digit growth in key metrics for over a decade. The company has a vast, untapped market opportunity worth an estimated $61 billion. Gartner has outperformed the industry with an average year-to-date return of 24.1% compared with a 14.4% gain for the latter.



Headwinds

However, a significant portion of Gartner’s revenues is generated from operations outside the United States. Significant dollar strength and adverse foreign currency fluctuations erode the profitability of the company. In addition, with modest revenues coming from the U.K., Gartner is likely to be stifled by the renegotiated deals and restrictions imposed on trade with other European Union members post the Brexit referendum.

Furthermore, although Gartner is widely viewed as a secular growth company as it remains relatively immune to the vagaries of the market, some of its services are cyclically sensitive. In addition, revenues from the federal government business are exposed to lengthy approval times and other austerity measures, which often increase operating risks. These factors undermine the long-term growth potential of the company to some extent.

Zacks Rank & Key Picks

Nevertheless, we remain bullish on this Zacks Rank #3 (Hold) stock. Better-ranked stocks in the industry include NV5 Global, Inc. (NVEE - Free Report) , Bureau Veritas SA (BVRDF - Free Report) and Stantec Inc. (STN - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.  

NV5 Global has a long-term earnings growth expectation of 20%. It topped earnings estimates thrice in the trailing four quarters with a positive surprise of 2.9%.

Bureau Veritas has a long-term earnings growth expectation of 5%. It has topped estimates thrice in the trailing four quarters with an average positive earnings surprise of 16.9%.

Stantec is currently trading at a forward P/E of 18.1x.

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