Why Is Gartner (IT) Up 3.6% Since Its Last Earnings Report?

A month has gone by since the last earnings report for Gartner, Inc. (NYSE:IT) . Shares have added about 3.6% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is IT 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 drivers.

First-Quarter Results

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

Adjusted earnings of 72 cents per share beat the consensus mark by 14 cents and increased 20% year over year.

Total revenues of $963.57 million beat the Zacks Consensus Estimate of $929 million. The figure was up 54% year over year. Adjusted revenues of $974 million, was up 16% from the year-ago quarter. Strength across majority of the segments drove the top line.

Revenues by Segment

Research segment’s revenues increased 49% year over year to $764 million. The quarterly gross contribution margin was 70% for the quarter, up from 69% in the year-ago period. Under Global Technology Sales, client retention was 83%, while wallet retention was 104%. The same under Global Business Sales, were 82% and 99%, respectively.

Consulting segment revenues grew 5% from the year-ago quarter to $83 million. Backlog, the key leading indicator of future revenue growth for the Consulting business, was $104 million compared with $89 million in the prior-year period. Gross contribution margin was 29% compared with 30% in the year-earlier quarter.

Events segment revenue increased 31% from the year-ago quarter to $46 million. Gross contribution margin was 35%, down from 38% in the first quarter of 2017.

Talent Assessment & Other segment revenue was $70 million, while gross contribution margin was 61%.

Operating Results

Adjusted EBITDA increased 13.4% year over year to $161 million. Adjusted EBITDA margin rose to 16.7% from 22.7% in the year-ago quarter.

Balance Sheet and Cash Flow

Gartner exited first-quarter 2018 with cash and cash equivalents of $189.98 million compared with $538.91 million at the end of December 2017. As of Mar 31, 2018, long-term debt was $2,186.06 million compared with $2,899.12 million at the end of December 2017. Operating cash flow was $3 million and free cash flow was $27 million in the reported quarter.

2018 Outlook

Gartner has lowered its guidance for full-year 2018. The company currently expects revenues in the range of $3.9-$4.0 billion, compared with earlier expectations of $4.1-4.2 billion. Adjusted EPS is expected in the range of $3.51-$3.91, compared with $3.71-$4.11 expected earlier.

Adjusted EBITDA is expected in the range of $710-760 million compared with $750-$800 million expected earlier. Operating cash flow is expected in the range of $425-475 million compared with $460-$510 million expected earlier. Free cash flow is expected in the range of $416-456 million compared with $451-$491 million expected earlier.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been five revisions lower for the current quarter. In the past month, the consensus estimate has shifted downward by 14.3% due to these changes.

Gartner, Inc. Price and Consensus

Gartner, Inc. Price and Consensus | Gartner, Inc. Quote

VGM Scores

At this time, IT has a subpar Growth Score of D, though it is lagging a bit on the momentum front with an F. Charting a somewhat similar path, 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate investors will probably be better served looking elsewhere.

Outlook

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