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Analyst Blog

On Jan 14, 2014, we have reaffirmed our long-term Neutral recommendation on Omnicom Group Inc. (OMC - Analyst Report). Omnicom focuses on strengthening its business while expanding its client base globally. The increasing demand for media services, speedy growth of technologies and massive proliferation of channels are likely to drive the company’s growth, going forward. However, a competitive and fragmented communications services industry prevents us from being too bullish on this stock. Hence, we have taken a sideline stance on Omnicom.

Why at Neutral?

Omnicom is experiencing continuous revenue growth, driven by healthy performance in developed markets such as the U.S. and developing markets such as Asia and Latin America. The measures undertaken by the company to reduce costs have also helped it to boost earnings. The company is expanding its global footprint and moving into new service areas. Omnicom is also building upon its digital and analytical capabilities by investing in agencies and partnering with innovative technology companies in key markets.

On the operational front, Omnicom offers cost-effective marketing services in the field of advertising, which is expected to improve margins in 2013 and beyond.

However, Omnicom operates in a highly competitive market, where it faces competition from big service providers as well as from companies which are new to the industry. Both these entities are trying to profit from the high growth industry. In order to maintain and increase its market share, the company has to incur huge expenses. In addition, Omnicom is facing concentration risk as it relies on a few big clients for its businesses.

Other Stocks to Consider

Omnicom currently has a Zacks Rank #4 (Sell). Stocks that look promising in the industry include Clear Channel Outdoor Holdings Inc. (CCO - Snapshot Report) carrying a Zacks Rank #1 (Strong Buy), and Huron Consulting Group Inc. (HURN - Snapshot Report) and Accenture plc. (ACN - Analyst Report), both carrying a Zacks Rank #2 (Buy).

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