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 by tough market conditions.
Here we discuss about The Interpublic Group of Companies, Inc. IPG, a company whose shares have inched up 1.1% in the past year, against 19.8% decline of the industry and 7.6% fall of the Zacks S&P 500 composite.
It has an expected long-term (three to five years) earnings per share growth rate of 7.6%. Moreover, earnings are expected to register 5.8% growth in 2019.
However, the company faces its share of headwinds. A debt-laden balance sheet may limit Interpublic’s future expansion and make risk profile worse. Client concentration is likely to be a major hindrance to business as the company primarily relies on large clients for a significant portion of revenues. Despite these headwinds, we believe that the company has enough positives that justify retention in investors’ portfolio.
Factors Driving Interpublic
Solid Business Model
Interpublic’s digital capabilities, diversified business model and geographic reach provide a distinct competitive advantage. The company is expected to achieve targeted levels in the upcoming quarters, based on diversification across emerging regions and collaboration/integration across agencies through technological improvement. It continues to look for investments/acquisitions to expand in high-growth regions and key global markets.
Robust Organic Growth
Interpublic looks strong on the back of higher organic revenue growth. In the first nine months of 2018, organic revenue growth was 4.9%, which was primarily a result of net client wins and higher spending from existing clients, especially in the healthcare and financial services sectors. Geographically, organic growth was 4.6% in the United States and 5.4% in international markets.
Acquisitions: A Key Growth Catalyst
Interpublic is consistently acquiring and investing in global companies to expand product portfolio as well as adapt to rapidly changing marketing services and the media market. In 2018, the company has completed three acquisitions. These include the buyout of data-related and analytical services provider, Acxiom LLC in October; London-based social creative agency That Lot through its subsidiary, Weber Shandwick in July; and Brazil-based digital marketing and technology agency, Cappuccino in May.
In recent years, the company has acquired agencies across the marketing spectrum, which includes firms specializing in digital, mobile marketing, social media, healthcare communications and public relations as well as agencies with full-service capabilities.
Zacks Rank & Stocks to Consider
Interpublic currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the broader Zacks Business Services sector are Republic Services RSG, Waste Connections WCN and Navigant Consulting NCI, each carrying a Zacks Rank #2 (Buy). Long-term expected EPS (three to five years) growth rate for Republic Services, Waste Connections and Navigant is pegged at 10.7%, 11.7% and 13.5%, respectively.
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