2023-02-15-Gartner-Gartner_Inc._IT_4Q_earnings_outperformance,_with_resilient_Research_contract_value_growth_and_healthy_upside_to_2023_EBITD..._1__14页_720kb

Gartner Inc. (IT) Summary

Core Content

Gartner Inc. (IT) reported strong 4Q earnings, with revenue surpassing expectations and a conservative yet attractive 2023 EBITDA margin guide. The company is expected to outperform its 2023 EBITDA margin target of 21.5% due to revenue strength and structural cost efficiencies in T&E and real estate. The analysts reiterate their Buy rating and raise the 12-month price target from $391 to $403.

Key Financial Highlights

• Revenue: $1,504.7 million in 4Q 2022, up 15.2% year-over-year, exceeding the FactSet consensus of 11.1%.
• Research Revenue: Grew 9.0% y/y, outperforming the forecast of 8.0%.
• GTS Contract Value (CV) Growth: 10.0% y/y, slightly below the estimate of 11.2%.
• GBS CV Growth: 18.8% y/y, surpassing the forecast of 13.5%.
• Consulting Revenue: Increased 17.0% y/y, significantly outperforming the down 6.0% estimate.
• Conferences Revenue: Grew 76.0% y/y, exceeding the estimate of 66.7%, driven by the return of in-person events.

EBITDA and EPS Performance

• EBITDA Margins: Expanded 450 bps y/y to 28.0%, surpassing the estimate and consensus of 21.9%.
• EPS: $3.70 for 4Q 2022, outperforming the estimate of $2.58 and consensus of $2.50.
• Full-Year 2023 Guidance: Revenue of at least $5,865 million, EBITDA of at least $1,260 million, and EPS of at least $8.80. Guidance implies 21.5% EBITDA margins, with upside potential if the business performs in line with historical trends.

Key Drivers of Growth and Margin Expansion

• Research Business: Shows resilient double-digit CV growth, driven by sales force expansion and sustained enterprise IT spend.
• Consulting: Supported by a strong backlog of revenue, up 24% y/y.
• Conferences: Expected to host 47 in-person destination conferences in 2023, up from 39 in 2021 and 20 in 2020.
• Cost Efficiencies: Gartner benefits from T&E and real estate cost savings, which support margin expansion.

Risks

• Macroeconomic Headwinds: Potential softening of client demand and pressure on large corporate budgets.
• Consulting Sensitivity: Consulting is the most cyclically sensitive business and could be impacted by macroeconomic slowdowns.
• Contract Optimization: Faces a difficult comp in 4Q 2023.
• Sales Force Expansion: May lead to margin contraction.
• FX Risk: Currency fluctuations could impact financial performance.
• Dividend Yield: Not disclosed, suggesting no current dividend payout.

Valuation and Price Target

• Price Target: Raised to $403 from $391, based on a 23.0x NTM EBITDA multiple.
• Valuation Ratios:
  • P/E: 25.7 (12/22), 37.2 (12/23E), 30.9 (12/24E), 25.6 (12/25E).
  • EV/EBITDA: 17.2 (12/22), 22.2 (12/23E), 19.1 (12/24E), 16.2 (12/25E).
  • EV/sales: 4.6 (12/22), 4.8 (12/23E), 4.2 (12/24E), 3.6 (12/25E).
  • FCF Yield: 4.2% (12/22), 3.6% (12/23E), 4.8% (12/24E), 5.9% (12/25E).
  • Net Debt/EBITDA: 1.2 (12/22), 1.3 (12/23E), 0.9 (12/24E), 0.5 (12/25E).

Analysts and Contact Information

• George K. Tong, CFA: +1(415)249-7421 | george.tong@gs.com
• Sami Nasir, CFA: +1(415)834-7967 | sami.nasir@gs.com
• Anna Wu: +1(415)249-7235 | anna.wu@gs.com
• Alex Lakritz: +1(415)249-7072 | alex.lakritz@gs.com

Key Data

• Market Cap: $27.3 billion
• Enterprise Value: $28.9 billion
• 3m ADTV: $136.3 million
• Net Debt/EBITDA: 1.2 (12/22), 1.3 (12/23E), 0.9 (12/24E), 0.5 (12/25E)
• Free Cash Flow per Share: $12.26 (12/22), $12.28 (12/23E), $16.32 (12/24E), $20.07 (12/25E)

Estimate Changes

• Revenue Estimates: Revised from $5,949 million to $5,903 million for 2023, and $6,497 million for 2024.
• EBITDA Margin Forecasts: Raised from 21.2% / 21.4% to 21.7% / 22.0% for 2023 and 2024.
• EPS Estimates: Adjusted from $9.29 / $11.23 to $9.17 / $11.04 for 2023 and 2024, with a new 2025 EPS estimate of $13.31.

Conclusion

Gartner Inc. (IT) is showing strong financial performance with resilient Research growth, improved EBITDA margins, and a solid outlook for 2023. The company is well-positioned to outperform its EBITDA margin target due to revenue growth and cost efficiencies. The analysts maintain a Buy rating and raise the price target, reflecting confidence in the company's ability to generate value despite macroeconomic challenges.