Interpublic Group (IPG) Grows Organically To Boost Revenues

On May 19, we updated the research report on advertising and marketing provider The Interpublic Group of Companies, Inc. (NYSE:IPG) .

New York-based Interpublic, together with its subsidiaries, provides advertising and marketing services worldwide. It offers a range of advertising and marketing communication services, as well as marketing services. It also provides public relations, meeting and event production, sports and entertainment marketing, corporate and brand identity, and strategic marketing consulting services to a broad list of customers in more than 100 countries.

Interpublic has outperformed the Zacks categorized Advertising and Marketing industry in the last three months, with an average loss of 1.61% compared with 4.9% decline for the latter. Interpublic expects to strengthen its position with respect to new business activities as well as opportunities from existing and new clients. Its impressive results were driven by revenue growth as well as successful cost streamlining initiatives. The company expects the growth momentum to continue, as its leverages new business wins to improve its growth outlook. The improving position of the agencies whether in PR, healthcare communications, sports and entertainment, or interactive marketing gain industry recognition on a continuous basis, which augur well for its long-term growth.

Moving ahead, the company plans to focus on de-leveraging and improving its balance sheet and reducing effective cost of debt. The Group’s best-in-industry talent and tools are expected to offer optimal and affordable solutions, thus rendering an edge over its peers. The company’s efforts in reducing costs, continuous margin improvement, stronger balance sheet and better capital structure work as an aid in increasing returns and profitability. For 2017, the company expects organic growth in the range of 3–4%, with a 50 basis points improvement in operating margins. In addition, Interpublic intends to hike its quarterly dividend by 20% year over year to 18 cents per share in 2017 to reward its shareholders with healthy risk-adjusted returns.

However, the company forms part of the communications industry, which is highly competitive in nature. Agencies and media services compete with other agencies and creative or media services providers to maintain existing client relationships and to win new clients. Also, keeping in view the service-oriented nature of the whole industry, it becomes imperative for the company to increase the count of talented employees as well as retain the existing ones. These are likely to pose challenges to the company’s prospects.

Although the company is the third largest advertising company in the world, it faces concentration risks as it depends on a few significant customers for a large proportion of its revenues. A reduction in advertisement spending from any of the customers can significantly dent the company’s revenues. Moreover, constrained marketing budgets from big clients are expected to slow down organic growth and lead to account loss headwinds for Interpublic going forward.

Interpublic currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Hitachi, Ltd. (OTC:HTHIY) , Publicis Groupe S.A. (OTC:PUBGY) and InnerWorkings, Inc. (NASDAQ:INWK) . Publicis Groupe and InnerWorkings carry a Zacks Rank #2 (Buy), while Hitachi sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Hitachi is currently trading at a forward P/E of 11x. It has a long-term earnings growth expectation of 13%.

Publicis Groupe has a long-term earnings growth expectation of 9.51%. It is currently trading at a forward P/E of 14.4x.

InnerWorkings has a long-term earnings growth expectation of 21.7%. It is currently trading at a forward P/E of 22.5x.

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