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Omnicom Poised to Benefit From Holistic Growth, Risks Remain

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On Sep 1, we issued an updated research report on global marketing and corporate communications firm, Omnicom Group Inc. (OMC - Free Report) .

Growth Drivers

Omnicom is concentrating on strengthening its business and expanding its client base globally through the acquisition of complementary companies. The company maintains a balanced growth model through a combination of well-focused internal development initiatives and strategic acquisitions. We expect it to witness higher revenues in the imminent future on the back of prudent acquisitions and organic growth.

At the same time, Omnicom is witnessing a steady performance in developed markets like the United States and developing markets like Asia. The measures undertaken by the company to reduce costs have helped it boost earnings. It is expanding its global footprint and is moving into new service areas. The company is also building upon its digital and analytical capabilities by investing in agencies and partnering with innovative technology companies in key markets. Omnicom’s operations are diversified across technology platforms, thus lowering its dependence on any one product in these dynamic technological markets.

The company has outperformed the industry with an average year-to-date loss of 14.9% compared with a decline of 17% for the latter. In order to spur growth, Omnicom started using open-source technique to access the current information in the market. The increasing demand for media services, speedy growth of technologies and massive proliferation of channels are likely to translate into incremental revenues in the future.



Headwinds

However, a significant portion of Omnicom’s revenues comes from Europe. At present, when the economy in the region is highly unpredictable, particularly after the Brexit referendum, it becomes difficult for the company to increase revenues and reduce costs. Brexit could further result in higher tariff and non-tariff barriers to trade between the U.K. and the European Union, lowering the productivity of the company. In addition, it is susceptible to market risks of losing contracts related to media purchases and production costs, which thereby affects its bottom line and undermines its organic growth to some extent.

Furthermore, Omnicom forms part of the communications industry, which is highly competitive in nature. Various agencies and media service providers compete with each other to maintain existing client relationships and to 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 as well as retain the existing ones. These factors are likely to pose some challenges for the company.

Moving Forward

Nevertheless, we expect Omnicom to witness higher revenues in the future and remain impressed by its focused growth initiatives.

Omnicom currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Publicis Groupe S.A. (PUBGY - Free Report) , Accenture plc (ACN - Free Report) and TransUnion (TRU - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Publicis Groupe has a healthy long-term earnings growth expectation of 12.9%.

Accenture has a decent long-term earnings growth expectation of 10.3%. It topped estimates in each of the trailing four quarters with an average positive earnings surprise of 2.6%.

TransUnion has a healthy long-term earnings growth expectation of 10%. It beat estimates in each of the trailing four quarters with an average positive earnings surprise of 10.6%.

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