Gartner, Inc. (IT) operates as a research and advisory company for more than 14,000 organizations in more than 100 countries. The Stamford, Conn.-based concern is a trusted advisor and objective resource, serving leaders of all major functions across organizations in every sector worldwide.

Shares of IT have gained 96% in price year-to-date, outperforming the benchmark S&P 500 index's 24.3% returns over this period. 

The company’s strong topline performance buoyed by growth in the Research and Consulting segments and operational efficiency improvements have contributed to drive the stock's price rally.

Here is what could shape IT's performance in the near term:

Technological Transformation

Technology innovation is a key facilitator of competitive differentiation and a driving force in the transformation of many sectors. Breakthrough technologies emerge on a regular basis, making it difficult for even the most forward-thinking organizations to keep up. So, as organizations continue to focus on digital business transformation, the demand for research and advisory should keep rising. Consequently, companies like IT should continue to witness robust demand for their products and services.

Strong Financials and Profitability

During the third quarter, ended September 30, 2021, IT's revenue increased 16.3% year-over-year to $1.16 billion. Its operating income grew 162.5% from its  year-ago value to $230.2 million. The company's net income surged 775.3% from the prior-year quarter to $148.8 million, while its EPS came in at $1.76. In addition, its adjusted EBITDA increased 81.5% year-over-year to $305 million.

IT's 63.9% trailing-12-months gross profit margin is 40.1% higher than the 49.4% industry average. Also, its ROC, net income margin, and ROA are 200.5%, 142.2%, and 178.2% higher than the respective industry averages. Furthermore, its $1.34 billion in cash from operations is 1044.2% higher than the $116.95 million industry average.

Consensus Rating and Price Target Indicate Potential Upside

Of the five Wall Street analysts that rated IT, two rated it Buy, and three rated it a Hold. The $361.60 12-month median price target indicates a 15.2% potential upside. The price targets range from a low of $339 to a high of $381.

Impressive Growth Prospects

The Street expects IT's revenues and EPS to rise 14.3% and 77.5%, respectively,  year-over-year to $4.69 billion and $8.68 in the current year. In addition, IT's EPS is expected to rise at a 21.6% CAGR over the next five years. Furthermore, the company has an impressive earnings surprise history; it has topped the Street’s EPS estimates in each of the trailing four quarters.

POWR Ratings Reflect Solid Prospects

IT has an overall grade of A, equating to a Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. IT has an A grade for Quality. The company's solid earnings and profitability are consistent with the Quality grade.

The stock is graded B for Growth, which is justified given the company's solid growth attributes.

Of the 11 stocks in the A-rated Outsourcing – Tech Services industry, IT is ranked #2.

Beyond what is stated above, we have graded IT for Stability, Value, Sentiment, and Momentum. Get all IT ratings here.

Bottom Line

IT's strong top-line performance, and rapid technological advancements have boosted its earnings and revenue growth over the past few quarters. The company  beat analysts' earnings estimates in the trailing four quarters. Given its solid fundamentals and impressive growth outlook, we think the stock could be a great pick now.

How Does Gartner Inc. (IT) Stack Up Against its Peers?

IT has an overall grade of A in our proprietary rating system. This rating is superior to its peers CGI Inc. (GIB), ServiceSource International Inc. (SREV), and Leidos Holdings Inc. (LDOS), which have a C (Neutral) rating.

IT shares were unchanged in premarket trading Wednesday. Year-to-date, IT has gained 96.01%, versus a 25.15% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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