Intrinsic value of Gartner, Inc. - IT

Previous Close

$157.20

  Intrinsic Value

$91.48

stock screener

  Rating & Target

sell

-42%

Previous close

$157.20

 
Intrinsic value

$91.48

 
Up/down potential

-42%

 
Rating

sell

We calculate the intrinsic value of IT stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 14.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  7.30
  7.07
  6.86
  6.68
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.53
  5.47
  5.43
  5.38
  5.35
  5.31
  5.28
  5.25
  5.23
  5.20
  5.18
  5.17
  5.15
  5.13
  5.12
  5.11
Revenue, $m
  4,265
  4,567
  4,880
  5,206
  5,545
  5,897
  6,264
  6,646
  7,045
  7,460
  7,892
  8,344
  8,815
  9,308
  9,822
  10,360
  10,922
  11,510
  12,125
  12,769
  13,443
  14,149
  14,889
  15,663
  16,475
  17,326
  18,218
  19,154
  20,134
  21,163
Variable operating expenses, $m
  2,530
  2,681
  2,838
  3,001
  3,170
  3,347
  3,530
  3,721
  3,920
  4,128
  3,948
  4,174
  4,410
  4,656
  4,913
  5,182
  5,463
  5,757
  6,065
  6,387
  6,725
  7,078
  7,448
  7,835
  8,241
  8,667
  9,113
  9,581
  10,072
  10,586
Fixed operating expenses, $m
  1,391
  1,422
  1,453
  1,485
  1,517
  1,551
  1,585
  1,620
  1,655
  1,692
  1,729
  1,767
  1,806
  1,846
  1,886
  1,928
  1,970
  2,014
  2,058
  2,103
  2,149
  2,197
  2,245
  2,294
  2,345
  2,397
  2,449
  2,503
  2,558
  2,614
Total operating expenses, $m
  3,921
  4,103
  4,291
  4,486
  4,687
  4,898
  5,115
  5,341
  5,575
  5,820
  5,677
  5,941
  6,216
  6,502
  6,799
  7,110
  7,433
  7,771
  8,123
  8,490
  8,874
  9,275
  9,693
  10,129
  10,586
  11,064
  11,562
  12,084
  12,630
  13,200
Operating income, $m
  344
  464
  590
  720
  857
  1,000
  1,149
  1,305
  1,469
  1,640
  2,215
  2,403
  2,600
  2,806
  3,022
  3,250
  3,488
  3,739
  4,002
  4,278
  4,569
  4,875
  5,196
  5,534
  5,889
  6,263
  6,656
  7,069
  7,504
  7,962
EBITDA, $m
  885
  1,016
  1,152
  1,294
  1,442
  1,597
  1,758
  1,927
  2,104
  2,289
  2,483
  2,686
  2,899
  3,122
  3,356
  3,601
  3,859
  4,129
  4,413
  4,711
  5,025
  5,354
  5,701
  6,065
  6,448
  6,850
  7,274
  7,719
  8,187
  8,680
Interest expense (income), $m
  23
  123
  144
  166
  189
  213
  237
  263
  290
  317
  346
  377
  408
  441
  475
  511
  548
  587
  628
  671
  716
  763
  812
  863
  917
  973
  1,032
  1,094
  1,159
  1,227
  1,298
Earnings before tax, $m
  221
  320
  423
  531
  644
  763
  886
  1,016
  1,151
  1,293
  1,839
  1,995
  2,159
  2,331
  2,511
  2,701
  2,901
  3,110
  3,331
  3,563
  3,806
  4,063
  4,333
  4,617
  4,916
  5,231
  5,562
  5,911
  6,278
  6,664
Tax expense, $m
  60
  86
  114
  143
  174
  206
  239
  274
  311
  349
  496
  539
  583
  629
  678
  729
  783
  840
  899
  962
  1,028
  1,097
  1,170
  1,247
  1,327
  1,412
  1,502
  1,596
  1,695
  1,799
Net income, $m
  161
  233
  309
  388
  470
  557
  647
  741
  840
  944
  1,342
  1,456
  1,576
  1,702
  1,833
  1,972
  2,118
  2,271
  2,431
  2,601
  2,779
  2,966
  3,163
  3,370
  3,589
  3,818
  4,060
  4,315
  4,583
  4,865

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  6,654
  7,124
  7,613
  8,122
  8,650
  9,200
  9,773
  10,369
  10,990
  11,637
  12,313
  13,017
  13,753
  14,521
  15,323
  16,162
  17,039
  17,956
  18,916
  19,920
  20,972
  22,073
  23,227
  24,436
  25,702
  27,030
  28,422
  29,881
  31,411
  33,015
Adjusted assets (=assets-cash), $m
  6,654
  7,124
  7,613
  8,122
  8,650
  9,200
  9,773
  10,369
  10,990
  11,637
  12,313
  13,017
  13,753
  14,521
  15,323
  16,162
  17,039
  17,956
  18,916
  19,920
  20,972
  22,073
  23,227
  24,436
  25,702
  27,030
  28,422
  29,881
  31,411
  33,015
Revenue / Adjusted assets
  0.641
  0.641
  0.641
  0.641
  0.641
  0.641
  0.641
  0.641
  0.641
  0.641
  0.641
  0.641
  0.641
  0.641
  0.641
  0.641
  0.641
  0.641
  0.641
  0.641
  0.641
  0.641
  0.641
  0.641
  0.641
  0.641
  0.641
  0.641
  0.641
  0.641
Average production assets, $m
  2,474
  2,649
  2,830
  3,019
  3,216
  3,420
  3,633
  3,855
  4,086
  4,327
  4,578
  4,840
  5,113
  5,398
  5,697
  6,009
  6,335
  6,676
  7,032
  7,406
  7,797
  8,206
  8,635
  9,085
  9,556
  10,049
  10,567
  11,109
  11,678
  12,274
Working capital, $m
  -857
  -918
  -981
  -1,046
  -1,115
  -1,185
  -1,259
  -1,336
  -1,416
  -1,499
  -1,586
  -1,677
  -1,772
  -1,871
  -1,974
  -2,082
  -2,195
  -2,313
  -2,437
  -2,567
  -2,702
  -2,844
  -2,993
  -3,148
  -3,312
  -3,483
  -3,662
  -3,850
  -4,047
  -4,254
Total debt, $m
  2,673
  3,079
  3,501
  3,940
  4,396
  4,871
  5,365
  5,879
  6,415
  6,974
  7,557
  8,165
  8,799
  9,462
  10,155
  10,879
  11,635
  12,427
  13,255
  14,122
  15,030
  15,980
  16,976
  18,019
  19,112
  20,258
  21,459
  22,718
  24,038
  25,423
Total liabilities, $m
  5,742
  6,148
  6,570
  7,009
  7,465
  7,940
  8,434
  8,948
  9,484
  10,043
  10,626
  11,234
  11,868
  12,531
  13,224
  13,948
  14,704
  15,496
  16,324
  17,191
  18,099
  19,049
  20,045
  21,088
  22,181
  23,327
  24,528
  25,787
  27,107
  28,492
Total equity, $m
  912
  976
  1,043
  1,113
  1,185
  1,260
  1,339
  1,421
  1,506
  1,594
  1,687
  1,783
  1,884
  1,989
  2,099
  2,214
  2,334
  2,460
  2,591
  2,729
  2,873
  3,024
  3,182
  3,348
  3,521
  3,703
  3,894
  4,094
  4,303
  4,523
Total liabilities and equity, $m
  6,654
  7,124
  7,613
  8,122
  8,650
  9,200
  9,773
  10,369
  10,990
  11,637
  12,313
  13,017
  13,752
  14,520
  15,323
  16,162
  17,038
  17,956
  18,915
  19,920
  20,972
  22,073
  23,227
  24,436
  25,702
  27,030
  28,422
  29,881
  31,410
  33,015
Debt-to-equity ratio
  2.930
  3.150
  3.360
  3.540
  3.710
  3.860
  4.010
  4.140
  4.260
  4.370
  4.480
  4.580
  4.670
  4.760
  4.840
  4.910
  4.980
  5.050
  5.110
  5.170
  5.230
  5.280
  5.330
  5.380
  5.430
  5.470
  5.510
  5.550
  5.590
  5.620
Adjusted equity ratio
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  161
  233
  309
  388
  470
  557
  647
  741
  840
  944
  1,342
  1,456
  1,576
  1,702
  1,833
  1,972
  2,118
  2,271
  2,431
  2,601
  2,779
  2,966
  3,163
  3,370
  3,589
  3,818
  4,060
  4,315
  4,583
  4,865
Depreciation, amort., depletion, $m
  541
  551
  562
  573
  585
  597
  609
  622
  636
  650
  268
  283
  299
  316
  333
  351
  370
  390
  411
  433
  456
  480
  505
  531
  559
  588
  618
  650
  683
  718
Funds from operations, $m
  703
  785
  871
  961
  1,055
  1,153
  1,256
  1,363
  1,476
  1,594
  1,610
  1,739
  1,875
  2,017
  2,167
  2,323
  2,488
  2,661
  2,843
  3,034
  3,235
  3,446
  3,668
  3,902
  4,147
  4,406
  4,678
  4,964
  5,266
  5,583
Change in working capital, $m
  -58
  -61
  -63
  -65
  -68
  -71
  -74
  -77
  -80
  -83
  -87
  -91
  -95
  -99
  -103
  -108
  -113
  -118
  -124
  -129
  -136
  -142
  -149
  -156
  -163
  -171
  -179
  -188
  -197
  -207
Cash from operations, $m
  761
  846
  934
  1,027
  1,123
  1,224
  1,330
  1,440
  1,556
  1,677
  1,697
  1,830
  1,970
  2,116
  2,270
  2,431
  2,601
  2,779
  2,966
  3,163
  3,370
  3,588
  3,817
  4,057
  4,311
  4,577
  4,857
  5,152
  5,463
  5,789
Maintenance CAPEX, $m
  -135
  -145
  -155
  -166
  -177
  -188
  -200
  -212
  -225
  -239
  -253
  -268
  -283
  -299
  -316
  -333
  -351
  -370
  -390
  -411
  -433
  -456
  -480
  -505
  -531
  -559
  -588
  -618
  -650
  -683
New CAPEX, $m
  -168
  -175
  -182
  -189
  -197
  -204
  -213
  -222
  -231
  -241
  -251
  -262
  -273
  -286
  -298
  -312
  -326
  -341
  -357
  -373
  -391
  -409
  -429
  -449
  -471
  -494
  -517
  -542
  -569
  -597
Cash from investing activities, $m
  -303
  -320
  -337
  -355
  -374
  -392
  -413
  -434
  -456
  -480
  -504
  -530
  -556
  -585
  -614
  -645
  -677
  -711
  -747
  -784
  -824
  -865
  -909
  -954
  -1,002
  -1,053
  -1,105
  -1,160
  -1,219
  -1,280
Free cash flow, $m
  458
  526
  597
  672
  750
  832
  917
  1,006
  1,100
  1,197
  1,193
  1,300
  1,413
  1,532
  1,656
  1,786
  1,924
  2,068
  2,219
  2,378
  2,546
  2,722
  2,908
  3,103
  3,308
  3,525
  3,752
  3,992
  4,244
  4,510
Issuance/(repayment) of debt, $m
  392
  406
  422
  439
  456
  475
  494
  514
  536
  559
  583
  608
  635
  663
  692
  724
  757
  792
  828
  867
  908
  950
  996
  1,043
  1,093
  1,146
  1,201
  1,259
  1,320
  1,385
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  392
  406
  422
  439
  456
  475
  494
  514
  536
  559
  583
  608
  635
  663
  692
  724
  757
  792
  828
  867
  908
  950
  996
  1,043
  1,093
  1,146
  1,201
  1,259
  1,320
  1,385
Total cash flow (excl. dividends), $m
  850
  932
  1,019
  1,111
  1,206
  1,306
  1,411
  1,521
  1,636
  1,756
  1,776
  1,908
  2,048
  2,194
  2,348
  2,510
  2,680
  2,859
  3,047
  3,245
  3,454
  3,673
  3,903
  4,146
  4,402
  4,670
  4,953
  5,251
  5,565
  5,895
Retained Cash Flow (-), $m
  -61
  -64
  -67
  -70
  -72
  -75
  -78
  -82
  -85
  -89
  -93
  -97
  -101
  -105
  -110
  -115
  -120
  -126
  -131
  -138
  -144
  -151
  -158
  -166
  -174
  -182
  -191
  -200
  -210
  -220
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  789
  868
  952
  1,041
  1,134
  1,231
  1,332
  1,439
  1,550
  1,667
  1,683
  1,812
  1,947
  2,089
  2,238
  2,395
  2,560
  2,734
  2,916
  3,108
  3,310
  3,522
  3,745
  3,981
  4,228
  4,488
  4,763
  5,051
  5,355
  5,675
Discount rate, %
  9.10
  9.56
  10.03
  10.53
  11.06
  11.61
  12.19
  12.80
  13.44
  14.12
  14.82
  15.56
  16.34
  17.16
  18.02
  18.92
  19.86
  20.86
  21.90
  23.00
  24.15
  25.35
  26.62
  27.95
  29.35
  30.82
  32.36
  33.97
  35.67
  37.46
PV of cash for distribution, $m
  723
  723
  715
  697
  671
  637
  595
  549
  498
  445
  368
  319
  272
  228
  187
  150
  118
  90
  68
  50
  35
  24
  16
  11
  7
  4
  2
  1
  1
  0
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Gartner, Inc. is an information technology research and advisory company. The Company works with clients to research, analyze and interpret the business of information technology (IT), supply chain and marketing within the context of their individual roles. It operates in three segments: Research, Consulting and Events. Research segment consists of subscription-based research products, access to research inquiry, peer networking services and membership programs. Consulting segment consists of consulting, measurement engagements and strategic advisory services. Events segment consists of various symposia, conferences and exhibitions. It provides insight through reports, briefings, tools, access to its analysts, peer networking services and membership programs that enable its clients to make decisions about their IT, supply chain and digital marketing initiatives. Its consultants provide fact-based consulting services to help clients use and manage IT to optimize business performance.

FINANCIAL RATIOS  of  Gartner, Inc. (IT)

Valuation Ratios
P/E Ratio 67
Price to Sales 5.3
Price to Book 213
Price to Tangible Book
Price to Cash Flow 35.5
Price to Free Cash Flow 41.1
Growth Rates
Sales Growth Rate 13%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 8.7%
Cap. Spend. - 3 Yr. Gr. Rate 6.2%
Financial Strength
Quick Ratio 16
Current Ratio 0.1
LT Debt to Equity 1088.5%
Total Debt to Equity 1137.7%
Interest Coverage 14
Management Effectiveness
Return On Assets 9.2%
Ret/ On Assets - 3 Yr. Avg. 9.6%
Return On Total Capital 26.9%
Ret/ On T. Cap. - 3 Yr. Avg. 29.2%
Return On Equity -546.5%
Return On Equity - 3 Yr. Avg. 245.9%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 61.3%
Gross Margin - 3 Yr. Avg. 61%
EBITDA Margin 15.3%
EBITDA Margin - 3 Yr. Avg. 15.7%
Operating Margin 12.5%
Oper. Margin - 3 Yr. Avg. 13.3%
Pre-Tax Margin 11.8%
Pre-Tax Margin - 3 Yr. Avg. 12.7%
Net Profit Margin 7.9%
Net Profit Margin - 3 Yr. Avg. 8.4%
Effective Tax Rate 32.6%
Eff/ Tax Rate - 3 Yr. Avg. 33.7%
Payout Ratio 0%

IT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the IT stock intrinsic value calculation we used $3975 million for the last fiscal year's total revenue generated by Gartner, Inc.. The default revenue input number comes from 0001 income statement of Gartner, Inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our IT stock valuation model: a) initial revenue growth rate of 7.3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 9.1%, whose default value for IT is calculated based on our internal credit rating of Gartner, Inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Gartner, Inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of IT stock the variable cost ratio is equal to 60%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1361 million in the base year in the intrinsic value calculation for IT stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Gartner, Inc..

Corporate tax rate of 27% is the nominal tax rate for Gartner, Inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the IT stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for IT are equal to 58%.

Life of production assets of 17.1 years is the average useful life of capital assets used in Gartner, Inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for IT is equal to -20.1%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $850.757 million for Gartner, Inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 89.699 million for Gartner, Inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Gartner, Inc. at the current share price and the inputted number of shares is $14.1 billion.

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