A prudent investment decision involves buying stocks that have solid prospects and selling those that carry risks. At times, it is rational to hold certain stocks that have enough potential but are weighed down by tough market conditions.
Omnicom Group Inc. ( OMC Quick Quote OMC - Free Report) , with a market cap of $13.7 billion and long-term (three-five years) expected earnings per share growth rate of 7%, is a stock that investors should retain in their portfolio. Shares of the company have gained 12.5% over the past month. What’s Supporting the Rally?
Although many companies across diverse sectors have suspended dividend payouts amid the coronavirus crisis, Omnicom remains one of those few that are sailing through the tough economic time and maintaining dividend payouts. On May 28, the company announced a quarterly dividend of 65 cents per share payable on Jul 10 to shareholders as of record Jun 12.
Omnicom has a track record of consistent dividend payment. It had paid $571.2 million, $544.5 million and $523.4 million in dividends during 2019, 2018 and 2017, respectively.
Consistency and diversity of operations, along with increased focus on delivering consumer-centric strategic business solutions ensure Omnicom’s sustained profitability. The company’s adjusted earnings of $1.19 per share increased 1.7% year over year in the first quarter of 2020.
To mitigate the impacts of the coronavirus outbreak on its business, Omnicom has transitioned to a global work-from-home system and implemented business continuity plans.
Omnicom’s total debt to total capital ratio of 0.68 at the end of first-quarter 2020 was higher than the previous quarter’s 0.66. The increasing debt to capitalization ratio indicates that the proportion of debt to finance the company’s assets is on the rise. Higher debt as a percentage of total capital indicates that a company has a higher risk of insolvency in challenging times.
Further, the company’s cash and cash equivalent balance of $2.7 billion at the end of the first quarter was well below the long-term debt level of $6.3 billion, underscoring that it doesn’t have enough cash to meet this debt burden. The cash level, however, can meet the short-term debt of $11 million.
Zacks Rank & Key Picks
Omnicom currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader Zacks
Business Services sector are DocuSign ( DOCU Quick Quote DOCU - Free Report) , SPS Commerce ( SPSC Quick Quote SPSC - Free Report) and SailPoint Technologies ( SAIL Quick Quote SAIL - Free Report) . All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The long-term expected earnings per share (three to five years) growth rate for DocuSign, SPS Commerce and SailPoint are at 31.2%, 15% and 15%, respectively.
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