What's In The Cards For Gartner (IT) This Earnings Season?

Information technology services provider Gartner, Inc. (NYSE:IT) is scheduled to report second-quarter 2017 results before the opening bell on Aug 8. In the last reported quarter, the company’s adjusted earnings missed the Zacks Consensus Estimate by a penny. The company has a modest earnings history with three beats in the trailing four quarters with an average positive surprise of 4.6%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

With diligent execution of operational plans, Gartner has recorded double-digit growth in key metrics for over a decade. In addition, this performance-driven firm has a strong cash flow and a healthy balance sheet position. It has a vast, untapped market opportunity worth an estimated $61 billion. The acquisition of CEB, an industry leader in providing best practice and talent management insights, further reinforces Gartner’s market strength. The combination of its analyst-driven, syndicated research and advisory services with CEB’s best practice and talent management insights across a range of business functions is likely to provide a comprehensive and differentiated suite of services portfolio across the globe.

Gartner has a recurring revenue stream with 75% of its total revenue 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 client needs. This enables it to have a competitive advantage against its rivals. Leveraging its intellectual capital, Gartner creates and distributes proprietary research content as broadly as possible via published reports, interactive tools, facilitated peer networking, briefings, consulting and advisory services, and events. These facilitate a steadily improving revenue stream for the company.

Gartner offers timely, thought-provoking and comprehensive analysis that is known for its high quality, independence and objectivity. This unbiased, pragmatic and actionable insight can help organizations effectively save thousands of dollars through in-depth research. With rapid strides in technology and massive proliferation of the Internet of things, the differences between the physical and digital worlds have gradually blurred. As a result, information technology has become critical for all firms to support higher productivity, improve performance metrics and protect the enterprise from cyber-security threats. 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.

Gartner is relatively immune to the vagaries of the market due to secular growth of information technology spend and its increasing market penetration rate. However, 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.

Earnings Whispers

Our proven model does not conclusively show that Gartner is likely to beat earnings this quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and Zacks Consensus Estimate, is 0.00% as both are currently pegged at 83 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Gartner, Inc. Price and EPS Surprise

Gartner, Inc. Price and EPS Surprise | Gartner, Inc. Quote

Zacks Rank: Gartner has a Zacks Rank #2. While this increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

CACI International Inc (NYSE:CACI) has an Earnings ESP of +1.83% and a Zacks Rank #2.

Alibaba Group Holding Limited (NYSE:BABA) has an Earnings ESP of +4.11% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Coca-Cola European Partners plc (NYSE:CCE) has an Earnings ESP of +4.69% and a Zacks Rank #2.

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