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Why Gartner Stock Jumped 18% in May

By Beth McKenna - Jun 8, 2021 at 10:29AM

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Investors loved the global research and advisory leader's big increase in full-year earnings guidance.

What happened

Shares of research and advisory giant Gartner (IT 2.27%) jumped 18.4% in May, according to data from S&P Global Market Intelligence. The catalyst behind the pop was the company's release of a strong first-quarter report, which included a raise in full-year revenue and earnings guidance.

For context, the S&P 500 returned 0.7% last month.

Gartner is solidly outperforming the market so far this year after underperforming last year. In 2021, the stock is up 44.2% through June 7, while the S&P 500 has returned 13.3% over this period. In 2020, Gartner stock eked out a gain of 4%, while the broader market returned 18.4%.

The words "Business Intelligence" written in the center of a paper and surrounded by related concepts.

Image source: Getty Images.

So what

On May 4, shares of Gartner surged 14.2% following the company's release of its first-quarter results. Revenue rose 8.4% (5.7% in constant currency) to $1.1 billion, driven by contract value growth in the healthcare and technology industries. 

Net income according to generally accepted accounting principles (GAAP) was $164 million, or $1.84 per share, more than double the year-ago period's net income of $75 million, or $0.83 per share. Adjusted for one-time items, earnings per share (EPS) soared 67% year over year to $2. That result crushed the Wall Street consensus estimate of $1.05.

In the earnings release, CEO Gene Hall commented, "We had an outstanding start to the year with strong growth in contract value, revenue, EBITDA [earnings before interest, taxes, depreciation, and amortization], and free cash flow."

IT Total Return Price Chart

Data by YCharts.

Now what

Due to its better-than-expected results in the first quarter, the company raised its full-year guidance. It now expects revenue to grow at least 10% year over year to at least $4.51 billion, up from its prior outlook of revenue growth of at least 6%. It also guided for adjusted EPS of at least $6.25, which represents growth of at least 28% year over year. This is a huge increase from its prior outlook of adjusted EPS of $4.10, or a decline of 16%. 

On the earnings call, CFO Craig Safian broke down management's full-year revenue growth expectations for its three segments. It expects research revenue of at least $3.94 billion, or growth of at least 9.2%. Conferences revenue is projected to be at least $170 million, or growth of at least 42%, and consulting revenue is expected to rise at least 6.4% to land at a minimum of $400 million. 

Gartner stock is worth putting on your watch list. The company has a track record of easily beating earnings expectations and generates considerable free cash flow.

 

Beth McKenna has no position in any of the stocks mentioned. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.

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Gartner, Inc. Stock Quote
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