Monday, 9 August 2010

Gartner (IT)

IT - Gartner - Share Price 25.28 - Pre Earnings 17th August 2010.

Position : Short Prior to Earnings

Market Cap 2,460m. Revenue last year $1,139m. Net Income last year $83m. Net income prior year $103m. PE of between 24-30. IBM PE is 13. HPQ PE is 12. MSFT PE is 12.

So massive growth ? Well no. 2006 Revenues 1,060m. 2009 Revenues 1,139m. An increase of 7% . Hardly worth a PE of 30.

They have deferred revenue to manage the top and bottom lines. But you cant manage cash flows. Cash flow $162m for 2009 and $184m for 2008. Market cap is still 15x cash flow !!.

Short interest has increased in the last month, though is still low.

Balance sheet - looking not too good. Excluding the deferred revenues and goodwill there is a net deficit of around $67m. The point being there is not a large amount of cash or other assets on the balance sheet.

Operating cash flow for the last quarter was a negative $8m.

Analyst are expecting revenues of $306m for the year with an annual revenues of $1,270m for the current year and $1,410m for the following year. Quarter earnings are expected at 22c.

Estimates of EPS is 1.04c for the current year and 1.26c for the following year.
In reality during the boom times the company has only achieved 1.02c in 2008 and 0.88c in 2009. Last quarter the company acheived 20c.

Even if revenues are fudged, I still cant see how a company that earns $1 in a year is worth $25.3.

Apple is forecast to earn 17.47 for next year. Share price is 260.45. Giving a forward PE of 14.88.

This company is forecast to earn 1.26c giving it a forward PE of 20. Apple at least has a good chance of achieveing this earnings traget.

In terms of options activity there is not much going on to provide any insight.

I am going to short this one on the basis that even if it hits both earnings and revenue targets, unless it is going to compete with the Iphone, the PE ratio is unsustainable, compared to say Accenture, IBM and the like.

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About Me

I try and work a broadly market neutral strategy and based purely on fundamentals and my gut feel.