On Jan 15, 2014, we have reaffirmed our long-term Neutral recommendation on The Interpublic Group of Companies, Inc (IPG - Analyst Report) . We believe the company will have high growth potential in the future based on its diversified business and geographical presence. Moreover, the company’s strict cost-control strategy, technological collaboration across agencies, and investment in new businesses, look impressive. The Group’s best-in-industry talent and tools, cost management techniques and strong liquidity position are expected to render it an edge over its peers. However, concentration risks and foreign operational hazards could substantially affect the Group’s performance in the upcoming quarters and force us to be on the sidelines.
Interpublic expects to strengthen its position with respect to new business activities as well as opportunities from the existing and new clients. The new business wins will improve its growth outlook and increase margins in the upcoming year. The strong financials, improving position of the ad agencies and focus on cost management bodes well for the company’s long-term growth.
Interpublic aims to boost its top-line performance with consistent focus on organic and inorganic growth. The company continues to look for strategic investments/acquisitions to expand in high-growth and key world markets. It also aims to return significant cash to shareholders through share repurchases and dividend payouts. Moreover, its commitment toward controlling costs is likely to fuel further growth in the coming years.
However, the company forms a part of the communications industry which is highly competitive in nature. We note that the agencies and media services compete with other agencies and the creative or media services providers maintain existing client relationships and 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 while retaining the existing ones.
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
Consequently, over the last 30 days, the Zacks Consensus Estimate for 2013 and 2014 has remained constant at 82 cents and $1.04 per share, respectively.
Other Stocks to Consider
Interpublic currently has a Zacks Rank #4 (Sell). Other stocks that look promising in the industry include Clear Channel Outdoor Holdings Inc. (CCO - Snapshot Report) , WPP plc (WPPGY - Analyst Report) and Huron Consulting Group Inc. (HURN - Snapshot Report) , both carrying a Zacks Rank #2 (Buy).