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Gartner (IT) Up 9.5% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Gartner (IT - Free Report) . Shares have added about 9.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Gartner due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Second-Quarter Results

Gartner reported strong second-quarter 2018 results, with revenues and earnings surpassing the Zacks Consensus Estimate.

Adjusted earnings of $1.03 per share outpaced the consensus mark by 6 cents and increased 17% on a year-over-year basis. Revenues totaled $1 billion, which exceeded the Zacks Consensus Estimate by $15 million. The reported figure was up 19% year over year. Adjusted revenues of $1 billion were up 14% from the year-ago quarter. Strength across the majority of the segments drove the top line. Total contract value was approximately $2.9 billion, up 12% year over year.

Revenues by Segment

Revenues at the Research segment increased 25% year over year to $770 million. Gross contribution margin was 69% in the second quarter, up from 65% in the year-ago period. Under Global Technology Sales, client retention was 82% and wallet retention was 105%. Global Business Sales client retention was 83% and wallet retention was 97%.

Revenues at the Consulting segment grew 5% from the year-ago quarter to $96 million. Gross contribution margin was 35% in the quarter, up from 34% in the year-ago period. Backlog, the key leading indicator of future revenue growth for the Consulting business, totaled $106 million compared with $91 million in the prior-year period.

Revenues at the Events segment increased 22% from the year-ago quarter to $111 million. Gross contribution margin was 57%, up from 55% in the year-ago period. Revenues at the Other segment summed $23 million, while gross contribution margin was 65%.

Operating Results

Adjusted EBITDA increased 11% year over year to $191 million. Adjusted EBITDA margin contracted 50 basis points (bps) to 19.1%.

Balance Sheet and Cash Flow

Gartner exited the second quarter with cash and cash equivalents balance of $141.8 million compared with $190 million at the end of the prior quarter. Long-term debt at the end of the second quarter was $2.15 billion compared with $2.19 billion at the end of the second quarter. Operating cash flow totaled $174 million and free cash flow was $183 million in the reported quarter.

2018 Outlook

The company expects full-year revenues to be in the range of $3.92-$4.03 billion. Adjusted earnings are anticipated to be in the range of $3.51-$3.91 per share. Adjusted EBITDA is projected in the $710-$760 million band. Operating cash flow is envisioned between $425 million and $475 million. Free cash flow is expected in the range of $416-$456 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -16.3% due to these changes.

VGM Scores

At this time, Gartner has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks style scores indicate that the company's stock is suitable for growth and momentum investors.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Gartner has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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