Capitalising On Emerging Tech And Critical Growth For Expansive Future Revenue

Key Takeaways

• Gartner's expanded salesforce is poised to tap into large market opportunities, boosting sales productivity and potential revenue growth.
  
• Strong cash flow generation and share repurchase program could enhance EPS and increase returns on invested capital over time.
  
• Gartner faces potential revenue growth pressures due to financial exposures, revenue unpredictability, onboarding costs, currency fluctuations, and increased competition.

Catalysts

Operates as a research and advisory company in the United States, Canada, Europe, the Middle East, Africa, and internationally.

• Gartner's increased hiring and expansion of its salesforce, particularly in the second half of 2024, is anticipated to capture more of the large untapped market opportunity, which could lead to increased sales productivity and revenue growth.
  
• The ongoing demand for Gartner's insights in emerging technology areas such as AI, cybersecurity, and data analytics positions the company to leverage these trends for enterprise growth, potentially boosting revenue from new and existing clients.
  
• The acceleration of contract value growth, especially among tech vendors and enterprise function leaders, suggests a potential for sustained double-digit revenue growth, as more clients renew and enhance their contracts amidst a complex economic environment.
  
• With a robust pipeline for both Global Technology Sales (GTS) and Global Business Sales (GBS), Gartner's strategic focus on high-value segments such as finance, legal, and supply chain is likely to drive an increase in contract value, impacting overall revenue positively.
  
• Strong cash flow generation and a strategic share repurchase program may enhance earnings per share (EPS) over time, as reduced share count coupled with growing profitability can contribute to higher returns on invested capital.

Gartner Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Gartner's revenue will grow by 9.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 17.3% today to 15.2% in 3 years time.
• Analysts expect earnings to reach $1.2 billion (and earnings per share of $16.66) by about November 2027, up from $1.1 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 39.0x on those 2027 earnings, up from 37.2x today. This future PE is lower than the current PE for the US IT industry at 44.5x.
• Analysts expect the number of shares outstanding to decline by 1.6% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 7.17%, as per the Simply Wall St company report.

Gartner Future Earnings Per Share Growth

Risks

• Gartner's exposure to small tech vendors experiencing financial difficulties may lead to renewals at lower rates, which could pressure contract value growth and potentially impact future revenue streams.
  
• The variability in Gartner's contract optimization business, due to its reliance on large, inconsistent deals, introduces revenue unpredictability that could affect overall earnings stability.
  
• Despite efforts, the onboarding and ramp-up of new sales hires, which takes up to three years for full productivity, could temporarily increase expenses without a proportionate immediate boost in revenue, affecting net margins.
  
• With a significant portion of revenue and expenses denominated in foreign currencies, Gartner faces potential financial exposure to currency fluctuations, which could unpredictably impact reported earnings.
  
• Increased competition and market expectations for significant improvements in AI-driven productivity for Gartner’s offerings could result in challenges to justify pricing premiums, potentially affecting future contract values and revenue growth.

Valuation

• The analysts have a consensus price target of $530.22 for Gartner based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $582.0, and the most bearish reporting a price target of just $460.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $8.0 billion, earnings will come to $1.2 billion, and it would be trading on a PE ratio of 39.0x, assuming you use a discount rate of 7.2%.
  
• Given the current share price of $513.48, the analyst's price target of $530.22 is 3.2% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.