WPP Raised To Hold On Inorganic Growth, Expansion Plans

On Sep 23, Zacks Investment Research upgraded WPP (LON:WPP) plc (NASDAQ:WPPGY) to a Zacks Rank #3 (Hold).

Based in Dublin, Ireland, WPP, together with its subsidiaries, provides advertising and communication services worldwide. The company operates through a number of established global, multinational and national advertising and marketing service companies that are organized into four business segments. WPP operates across North America, the United Kingdom, Continental Europe, the Asia Pacific, Latin America, Africa, and the Middle East.

The company is one of the largest advertising companies in the world, having accumulated a vast portfolio of global and regional brands. The company has also survived the U.S., U.K. and global recessions. It is currently well poised to grow, as the global economy is witnessing a rebound, courtesy of a strong momentum in the global media and advertising space. Meanwhile, the company is focusing on growing its revenues and gross margin at a faster rate than the industry. Its geographically superior position in new markets and functional strength in new media and data investment management will also help boost revenues, going forward.

Acquisitions have been WPP’s key strategy to strengthen foothold in new and emerging markets. WPP completed 36 transactions in the first six months of 2016, out of which 13 acquisitions and investments were made in new markets and 23 in quantitative and digital spaces. Of these, 9 were driven by individual clients or agency needs while another 9 were in both new and quantitative and digital markets. The buyouts have been in accordance with the company’s strategic focus on new markets, new media and data investment management. These collaborations will help WPP leverage its substantial technology assets and stay ahead of the curve in the dynamic industry. In addition, on Aug 5, 2016, WPP announced that its subsidiary Grey Group acquired a majority stake in Maruri Publicidad S.A., a leading full-service communications firm in Ecuador. The acquisition augments WPP’s position in Ecuador, fortifying its network in Latin America.

However, the company operates in a highly competitive and fragmented communication services industry. The group’s major competitors are large multinational communication services companies, regional and national advertising and marketing service firms as well as emerging media companies. Also, WPP depends on a limited number of big clients for a significant portion of its revenues. Thus, loss of any of these clients could impact the company’s prospects and operational results.

Macroeconomic slowdown and geopolitical issues also raise caution as they have a direct impact on client spending. The company currently faces numerous headwinds such as economic fragility of the Eurozone, particularly after Brexit, political instability in the Middle East and a slowdown in China. The company is also likely to be stifled by the renegotiated deals and restrictions imposed on trade with other European Union members. Also, these macroeconomic risks make other companies cautious about advertising and marketing outlay, thereby contracting advertising budgets. The advertising giant is also witnessing softness in its Data Investment Management segment as discretionary spending remains under review by clients in mature markets. Numerous macroeconomic risks that continue to affect the global environment are also making companies more vigilant with regard to advertising and marketing spending. Furthermore, markets like France, Belgium and Spain continue to suffer from a tough climate for advertisers.

WPP currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks include Marin Software Incorporated (NYSE:MRIN) , Xerox Corporation (NYSE:XRX) and InnerWorkings Inc. (NASDAQ:INWK) , each of which carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Marin Software, belonging to the Advertising and Marketing Services space, has a positive earnings surprise history. The company beat estimates in all of the trailing four quarters.

Xerox, belonging to the Business Services space, has a positive earnings surprise. The company beat estimates thrice in the trailing four quarters.

InnerWorkings is a Business Service stock with an average earnings surprise of 77.9%. The company beat estimates in all of the past four quarters.

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