Ahead of Gartner Inc IT's second-quarter results, RBC Capital Markets reiterated the company as its top pick. The firm expects good results, with continued positive commentary on legacy IT trends and also on CEB potential.
Specifically, analyst Gary Bisbee expects second-quarter adjusted revenues of $921 million, representing 51 percent year-over-year growth and 12 percent growth, excluding CEB. Additionally, the analyst expects 300 basis points of EBITDA margin expansion and adjusted earnings per share growth of 12 percent to 84 cents, in line with the consensus estimate.
The firm also expects continued bullish commentary on Gartner's ability to improve the financial performance of CEB in time, although it's too early expect material improvement at CEB. Given that the firm expects CEB to see improvement only after several quarters, it said it doesn't see any imminent catalyst.
As such, RBC Capital Markets raised the price target on Gartner from $130 to $142. Despite the recent run, the firm expects 20 percent earnings per share and free cash flow growth in the next few years to drive further appreciation.
"Our sense is that Gartner's confidence in the quality of CEB's offerings and its ability to drive improvement has risen since the deal closed," the firm said.
RBC Capital Markets noted that Gartner is attractively valued at a discount to its historical valuation. As Gartner proves its ability to improve CEB, the firm sees potential for not only several years of elevated profit growth but also moderate valuation expansion over time.
At time of writing, Gartner shares were up 1.01 percent to $128.43.
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