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Dull Near-Term Outlook for Advertising and Marketing Industry

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The companies grouped under the Advertising and Marketing industry 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 (IPG - Free Report) and Omnicom (OMC - Free Report) .

Here are the industry’s three major themes:

  • It is a mature industry that has been subjected to scrutiny for the past several years. While revenues have remained stable, income, cash flow and dividends have declined.
     
  • Service activities continue to grow, driven by strength and stability in the U.S. economy. This continues to support advertising and marketing services.
     
  • Ad agencies continue to face digital disruption. Automated algorithms of Alphabet’s Google and Facebook are designed to allocate budgets for clients efficiently and are more cost efficient than traditional agencies. Thus, agencies already providing or shifting to digital marketing stand to gain as they are better positioned to address changing customer needs and face new competitors. According to eMarketer, digital ad spending in the United States and worldwide will grow 19% and 17.6%, respectively in 2019.

Zacks Industry Rank Indicates Gloomy Prospects

The Zacks Advertising And Marketing industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #220. This rank places it in the bottom 13% 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 bleak near-term growth prospects. 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 decreasing their estimates. Over the past year, the industry’s consensus earnings estimate for the current year has decreased 3%.

Despite the dull 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 Underperforms Sector and S&P 500

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

While the industry declined 1.1%, the broader sector and the Zacks S&P 500 composite have increased 10.5% and 11.5%, respectively.

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 11.36 compared with the S&P 500’s 17.7 and the sector’s 23.24.

Over the past five years, the industry has traded as high as 18.50X, as low as 10.46X and at the median of 14.71X, as the charts below show.

Price to Forward 12 Months

Bottom Line

The industry might not be able to tide over the challenges in the near term. None of the stocks in our advertising and marketing universe currently carry a Zacks Rank #1 (Strong Buy) or a Zacks Rank #2 (Buy).

Below, we have mentioned three stocks from the industry, which we believe investors should retain as they carry a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Interpublic have gained 12% year to date. The Zacks Consensus Estimate for the company’s 2019 earnings has remained unchanged in the past 60 days.

Price and Consensus: IPG

Price and Consensus: WPP

WPP plc’s (WPP - Free Report) stock has risen 23.4% in the year-to-date period. The Zacks Consensus Estimate for the company’s 2019 earnings has increased 2.6% in the past 60 days.

Price and Consensus: INWK

Shares of InnerWorkings (INWK - Free Report) have gained a massive 45.2% year to date. The consensus estimate for 2019 earnings has remained unchanged in the past 60 days.

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