Global marketing and corporate communications firm Omnicom Group Inc. (OMC - Free Report) is scheduled to report fourth-quarter 2017 results before the opening bell on Feb 15. Last quarter, the company’s earnings beat the Zacks Consensus Estimate by 3 cents. Over the trailing four quarters, it delivered a positive average earnings surprise of 1.5%, beating estimates on each occasion.
Let’s see how things are shaping up prior to this announcement.
Key Factors in the Quarter
Marketing and media budgets usually have a positive correlation with the economy. Consequently, media spending is currently trending up buoyed by reduced corporate taxes that have led to higher client spends and advertising budgets. Moreover, there has been a marked shift in the recent years as media consumption patterns have evolved from traditional to digital media.
Omnicom is likely to witness healthy performance in developed markets like the United States and developing markets like Asia. The company is expanding its global footprint and is moving into new service areas. It 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 measures undertaken by the company to reduce costs are likely to boost earnings.
However, a significant portion of Omnicom’s revenues comes from Europe. In the present scenario, 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, the company is susceptible to market risks of losing contracts related to media purchases and production costs, which thereby could affect its bottom line.
Moreover, as the company expands its international operations, it highly exposes itself to risks from foreign exchange barriers and uncertainty from monetary devaluation. The company also faces huge concentration risk as it relies on a few big clients for its businesses. Amid this backdrop, the Zacks Consensus Estimate for revenues in the to-be-reported quarter is currently pegged at $4,206 million compared with revenues of $4,242 million recorded in the year-ago quarter.
Our proven model conclusively shows that Omnicom is likely to beat earnings this quarter as it possesses the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is perfectly the case here as you will see below:
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is pegged at +0.05%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Omnicom has a Zacks Rank #3. This increases the predictive power of ESP and makes us reasonably confident about an earnings surprise.
Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.
Other Stocks to Consider
Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Agilent Technologies, Inc. (A - Free Report) has an Earnings ESP of +1.21% and a Zacks Rank #3.
Aaron's, Inc. (AAN - Free Report) has an Earnings ESP of +3.81% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Atlas Air Worldwide Holdings, Inc. (AAWW - Free Report) has an Earnings ESP of +0.48% and a Zacks Rank #2.
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