Investing.com -- Citi says this sector remains attractive even as new tariffs drag on consumer spending.
The brokerage resumed coverage on U.S. advertising giants Omnicom and Interpublic Group with Buy ratings.
Citi expects U.S. advertising spend to come in about 6% below pre-tariff estimates in 2025 and 5% lower in 2026.
Citi lowered revenue forecasts for both firms by 3% and now expects organic growth at Omnicom to be just 1% and Interpublic to decline 3.5% in 2025, below both company guidance and Street estimates.
Despite this muted outlook, Citi said the pro forma firm post-merger is undervalued.
“Pro forma OMC is now trading at about 9x 2026 EPS,” Citi wrote, adding the only other time the stock fetched a lower multiple was during the 2008 financial crisis.
“We expect the multiple to expand given the pro forma firm should be in a stronger position to serve clients with improved scale and broader technical capabilities,” analysts at Citi added.
Citi projects the Omnicom-IPG combination could generate $8.26 of adjusted EPS in 2026, rising to $9.42 in 2027, supported by $750 million in identified cost savings.
The firm maintained a $103 target on Omnicom and a $35 target on Interpublic, based on deal conversion terms.
While Citi sees U.S. tariffs hurting consumer outlays and advertising indirectly via lower household net worth, it noted that both agencies generate a meaningful share of revenue overseas, which helps buffer the blow.
The firm also expects the merged company to benefit from enhanced scale and broader capabilities in areas like data, digital platforms, and marketing tech.
Citi concluded, “We believe the pro forma firm will be better positioned to service clients than either standalone firm.”