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3 Advertising Stocks Poised to Escape COVID-Led Industry Weakness

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Economic slowdown on the coronavirus pandemic has affected advertisement spends across many industries. Reductions in social events such as sports, business conferences and concerts have significantly dampened service demand, making the scenario dull for the Zacks Advertising and Marketing Industry.

Remarkably, customer-centric approaches to business and cost-management initiatives are helping The Interpublic Group of Companies, Inc. (IPG - Free Report) , Omnicom Group Inc. (OMC - Free Report) and WPP plc (WPP - Free Report) to sail through these testing times.

About the Industry

The Zacks Advertising and Marketing industry comprises companies that offer a range of services, including advertising, branding, content marketing, digital/direct marketing, digital transformation, financial/corporate business-to-business advertising, graphic arts/digital imaging, healthcare marketing and communications, and in-store design services.

Prominent players from the industry include The Interpublic Group of Companies and Omnicom.

What’s Shaping the Future of the Advertising Industry?

Restriction on Physical Events: The industry’s revenues, income and cash flow have declined substantially, year to date, due to the pandemic-led reduction of social events such as sports, business conferences and concerts. With the second wave of coronavirus hitting the United States, the industry is expected to remain under pressure in the days to come.

Weak Advertising Spend: The pandemic has resulted in an economic slowdown and there has been a significant drop in advertising spending across the world. Demand for marketing and advertising services, especially in the travel and retail sectors, will take a longer time to revive.

Digital Marketing Gathering Steam: Amid the crisis, digital media consumption has shot up, with consumers spending more time indoors on various media platforms and streaming video services. Thus, agencies offering digital marketing services stand to gain, as these firms are better positioned to address this rapid change in customer preference. According to Magna’s most recent forecast, U.S. digital ad revenues are anticipated to be up 4.2% in 2020 and 7.4% in 2021.

Zacks Industry Rank Indicates Gloomy Prospects

The Zacks Advertising And Marketingindustry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #229. This rank places it in the bottom 9% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates underperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The sell-side analysts covering the companies in this industry have been steadily pushing their estimates south. Over the past year, the industry’s consensus earnings estimate for 2020 has moved 56% south.

Despite the gloomy prospects, we present a few stocks that you may want to consider for your portfolio. But before that it’s worth taking a look at the industry’s performance and current valuation.

Industry Lags S&P 500 & Sector

Over the past year, the Zacks Advertising And Marketing industry has underperformed the S&P 500 composite and the broader sector.

While the industry has depreciated 21.8%, the broader sector declined 6.8%, while the S&P 500 composite has rallied 15.5%.

One-Year Price Performance

Industry’s Current Valuation

On the basis of forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing advertising and marketing stocks, the industry is currently trading at 13.74 compared with the S&P 500’s 22.64 and the sector’s 31.19.

Over the past five years, the industry has traded as high as 14X, as low as 9.11X, and at the median of 11.95X, as the charts below show.

Forward 12-month Price-to-Earnings (P/E)

3 Advertising Stocks to Keep a Close Eye On

We present three stocks that currently carry a Zacks Rank #3 (Hold) and are well positioned for near-term growth. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Interpublic Group of Companies: The company is a provider of advertising and marketing services globally. With a flexible business model in place, the company has been focusing on its strategic priorities, promptly investing in talent and offerings, and managing operating costs amid the pandemic.

The Zacks Consensus Estimate for the current-year EPS has moved 8.8% north in the past 60 days. The stock has appreciated 32.5% over the past six months.

Price and Consensus: IPG

Omnicom: The company is a provider of advertising, marketing, and corporate communications services. Consistency and diversity of operations and focus on delivering consumer-centric strategic business solutions ensure long-term profitability for Omnicom. The company has divested underperforming and non-core businesses and reorganized to meet clients’ ever-transforming needs.

The Zacks Consensus Estimate for the ongoing year’s EPS has been revised 7.4% upward in the past 60 days. The stock has surged 49.7% over the past six months.

Price and Consensus: OMC

WPP: The company is a provider of communications, commerce, and technology services. Its operating performance and service executions have been robust during the pandemic. Adoption of the work-from-home model, continued assignment wins and cost-savings initiatives are helping WPP sail through these testing times.

The Zacks Consensus Estimate for the 2020 EPS has moved 4.8% north in 60 days’ time. Shares of the company have rallied 32.2% in the past six months.

Price and Consensus: WPP

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In-Depth Zacks Research for the Tickers Above


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Omnicom Group Inc. (OMC) - free report >>

Interpublic Group of Companies, Inc. The (IPG) - free report >>

WPP PLC (WPP) - free report >>