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Will Higher Research Revenues Aid Gartner (IT) Q3 Earnings?

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Information technology services provider Gartner, Inc.IT is scheduled to report third-quarter 2017 results before the opening bell on Nov 2. The company is likely to report higher revenues in Research segment that accounts for more than 72% of total revenues, due to improved demand for its products.

Whether this could result in higher earnings for the quarter remains to be seen.

Top-Line Improvement

With diligent execution of operational plans, Gartner has recorded double-digit growth in key metrics for more than a decade. In addition, this performance-driven firm has a strong cash flow and a healthy balance sheet position. It has a vast, untapped market opportunity worth an estimated $61 billion. The acquisition of CEB, an industry leader in providing best practice and talent management insights, further reinforces Gartner's market strength. The combination of its analyst-driven, syndicated research and advisory services with CEB's expertise is likely to provide a comprehensive and differentiated suite of services portfolio across the globe.

Gartner has a recurring revenue stream with 75% of its total revenues generated through subscription and long-term contracts. In addition, the company has a large and diverse addressable market with low customer concentration that mitigates operating risks. Operating in an industry with low barriers to entry, Gartner has an integrated research and consulting team designed to best serve client needs. This enables it to have a competitive advantage against its rivals. Leveraging its intellectual capital, Gartner creates and distributes proprietary research content as broadly as possible via published reports, interactive tools, facilitated peer networking, briefings, consulting and advisory services, and events. These facilitate a steadily improvement in the company's revenue stream.

The Zacks Consensus Estimate for Research segment revenues is currently pegged at $687 million, up from $462 million reported in the year-ago quarter. Revenues from the Event segment are expected to be $38 million compared with reported revenues of $33 million in the year-earlier quarter. However, revenues from the Consulting segment are anticipated to be $75 million, down from $79 million reported in the year-ago quarter.

Other Key Factors

Gartner is relatively immune to the vagaries of the market due to secular growth of information technology spend and its increasing market penetration rate. However, some of its services are cyclically sensitive. In addition, revenues from the federal government business are exposed to lengthy approval times and other austerity measures, which often increase operating risks. These factors undermine the long-term growth potential of the company to some extent.

Our proven model does not conclusively show that Gartner is likely to beat earnings this quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and Zacks Consensus Estimate, is -0.48%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Gartner, Inc. Price and EPS Surprise

Gartner, Inc. Price and EPS Surprise | Gartner, Inc. Quote

Zacks Rank: Gartner has a Zacks Rank #2. While this increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

KEMET Corporation KEM has an Earnings ESP of +7.46% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

Mylan N.V. MYL has an Earnings ESP of +3.92% and a Zacks Rank #2.

TELUS Corporation TU has an Earnings ESP of +4.35% and a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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