What's Priced In

What's Priced In

At $140.19, Gartner trades at about 10 times forward earnings, 7 times EBITDA and a ~12% free-cash-flow yield — below where it stood at the end of 2020, and roughly a quarter of the multiple it carried at its 2024 peak. Adjusted earnings barely moved over that span, so the derating is almost entirely a change in the multiple, not the earnings. This chapter quantifies what that price now assumes and frames the outcomes around it.

The derating was a re-rating

The share price fell about 75% from its November-2024 peak, but adjusted earnings did not. Adjusted EPS — which already strips out the 2025 goodwill impairment and the 2024 event-cancellation insurance gain — was $14.09 in 2024 and $13.17 in 2025, a 6.5% decline [1]. Consensus puts 2026 back at $13.68 (as reported). Against a 75% price decline, the earnings line is close to flat. The move down was a de-rating.

Trailing P/E uses each date's price over the most recent full-year adjusted EPS ($14.09 for FY2024, $13.17 for FY2025). Source: adjusted EPS from the 4Q25 earnings presentation [2]; prices as reported.

The peak multiple of roughly 39 times was a growth-stock rating applied to a business compounding contract value at low double digits. The current 10-to-11 times is the rating the market reserves for a business it expects to stop growing. What changed between the two was not the cash the company produces — free cash flow was $1.18 billion in 2025 [3] — but the growth investors will pay for. That distinction sits underneath every scenario below.

What the price implies

The arithmetic of the current price sets the frame. Gartner had 66,951,889 shares outstanding as of May 1, 2026 [4], so at $140.19 the equity is worth about $9.4 billion. Net of $1.7 billion of cash against roughly $3.0 billion of fixed-rate senior notes [5], enterprise value is about $10.7 billion. Against company guidance of at least $1,515 million of adjusted EBITDA and at least $1,135 million of free cash flow for 2026 [6], that is about 7 times EBITDA and a free-cash-flow yield near 12%.

Forward P/E on consensus 2026 adjusted EPS of $13.68 (as reported); EV/EBITDA and FCF yield on 2026 company guidance [7]; share count per the Q1 2026 10-Q [8].

A 12% free-cash-flow yield is the return an owner earns if free cash flow simply holds flat forever. Turned into a discount-rate frame, the current price implies falling rather than flat cash flow. Capitalizing the $1,135 million guided free cash flow as a perpetuity at $10.7 billion of enterprise value solves for a required-return-minus-growth spread of about 10.6%. At an 8% discount rate that implies free cash flow shrinking about 2.6% a year in perpetuity; at 10%, about 0.6% a year.

Derived: implied growth g = discount rate − (2026E free cash flow of $1,135M ÷ enterprise value of ~$10.7B). Free cash flow from 2026 guidance [9]; enterprise value from the Q1 2026 balance sheet [10].

The relevant comparison is history: operating cash flow compounded at about 7% a year over the past five years, and revenue at roughly 6% over three. The price is discounting a permanent break from that record — a business that shrinks slowly and indefinitely. The strongest fact for that read is that free cash flow already fell 15% in 2025 as the deferred-revenue swing turned billings negative (Financials and Estimates); the strongest fact against it is that the decline was concentrated in a US-federal contract-value cliff that largely anniversaries out in 2026 (Contract Value Stall).

Three scenarios

Whether the price is right resolves not in the multiple but in the contract-value and retention data — the cyclical-versus-structural question the report opened with. The three frames below hold that question as the swing variable, carry it through to 2028 adjusted EPS, and apply an exit multiple. They are illustrative, not forecasts, and the fair-value range is most sensitive to the exit multiple assumption.

Fair value = 2028 adjusted EPS × exit P/E. Current price $140.19 (as reported). Derived from the assumptions in the table below; earnings anchors from 2026 guidance [11] and consensus (as reported).

Illustrative scenarios; earnings anchors from 2026 guidance [12] and consensus 2026–27 adjusted EPS of $13.68 and $15.30 (as reported).

The shape is asymmetric: the structural-bear case is a drawdown of roughly a fifth to a third, while the base case is a modest re-rating and the bull case more than doubles the stock. Consensus sits inside the base frame — a mean price target of $162 and a median of $164, with a $120 low and $203 high (as reported). That the lowest published target is only about 14% below the current price is itself a data point: even the sell-side bears are modeling stagnation, not collapse.

The base case turns on the same re-acceleration management has already promised once. On the day the securities class period opens management said contract value would exit 2025 above 7.8% on the way to 12-16%, and instead Insights contract-value growth decelerated every quarter to 0.8% with the technology-sales channel at zero (Management Credibility). The identical 12-16% model has since been reprinted for 2026, so the recovery the base case embeds is the forecast that just failed — a reason to discount it rather than extend it the benefit of the doubt.

The downside floor

For a value investor the asymmetry only matters if the low end is a drawdown rather than a permanent loss. Gartner's balance sheet makes that case directly. Net debt is about 0.8 times adjusted EBITDA and the consolidated leverage ratio is 1.6 times against a bank covenant of 4.0 times [13]. The debt is 100% fixed-rate at a 4.34% blended coupon, and the nearest maturity is $800 million of 2028 notes [14] — comfortably inside $1.7 billion of cash [15], a $1.0 billion undrawn revolver, and more than $1.1 billion of annual free cash flow [16]. All three agencies rate the notes investment grade [17]. Operating cash flow was $1.29 billion in 2025 [18]. The near-term risk to the equity is a lower multiple, not insolvency.

Management is voting with the balance sheet. In the first quarter of 2026 Gartner repurchased 3,310,253 shares at an average of $158.49, against 300,745 shares at $507.65 a year earlier [19] — eleven times the share count at roughly a third of the price. At a 12% free-cash-flow yield, buybacks convert the yield into per-share compounding if the shares are below intrinsic value (Buybacks and Alignment).

The downside case is not insolvency but a further compression of the multiple, driven by the same variable that separates the scenarios. If the erosion is structural rather than cyclical — if AI substitution begins to show in client retention breaking its long-standing 83–86% band [20] — then a 10-times multiple can compress further toward the level a shrinking pure-play carries, and repurchasing stock in a declining franchise destroys value rather than creating it. In that case the stock stays cheap and grows cheaper, and the holding period works against the owner. The data has not yet settled which outcome holds: wallet retention was still below 100% in the first quarter of 2026 (GTS 97%, GBS 98%), while client retention held its band at 85% and 86% [21].

What decides it

Three lines in the filings resolve the scenarios, each checkable each quarter:

• Wallet retention re-crossing 100%. It fell to 96% (GTS) and 99% (GBS) in 2025 [22] and stayed below 100% into Q1 2026 [23]. Recovery above 100% is the cyclical-read confirmation; a second year below, with the federal drag already in the base, locates the erosion in the commercial core.
• Client retention holding 83–86%. It has never left that band and rose to 85% in 2025 [24]. A break below it is the clearest early tell of AI displacement, and would validate the bear multiple.
• Deferred revenue. It grew to $3.02 billion at the end of the first quarter of 2026 from $2.81 billion at year-end [25]; because subscriptions are billed in advance, this line turns before recognized revenue does.

At 10 times earnings with net debt under one turn, the price already discounts durable decline. Whether that discount is a margin of safety or a warning is a question the retention lines will answer before the multiple does.