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Near-Term Outlook for Advertising & Marketing Industry

Zacks Equity Research

The Zacks Advertising And Marketing industry comprises companies that offer a range of services, including advertising, branding, content marketing, digital/direct marketing, digital transformation, financial/corporate business-to-business advertising, graphic arts/digital imaging, healthcare marketing and communications, and in-store design services.

Here are the industry’s three major themes:

  • The U.S. advertising industry has been under intense scrutiny since 2016 when a report by the Association of National Advertisers (ANA) revealed existence of rebates and other non-transparent practices in the industry. Pressure mounted on media agencies from clients demanding more transparency and reduction in ad fees. Many brands moved their ad processes in-house. The situation took a toll on shares of major industry players.
  • Recently, five agency holding companies - Interpublic Group, Omnicom, Publicis Groupe, WPP and MDC Partners, subpoenaed by the Department of Justice as part of another investigation into video production and postproduction practices, were cleared. This is expected to have a positive impact on the industry as a whole.
  • Ad agencies are facing digital disruption. Automated algorithms of Alphabet’s Google and Facebook are designed to allocate budgets for clients efficiently and are more cost efficient than traditional agencies. Thus, agencies already providing or shifting to digital marketing stand to gain as they are better positioned to address changing customer needs and face new competitors.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Advertising and Marketing industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #110. This rank places it in the top 43% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term growth prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and current valuation.

Over the past year, the industry’s consensus earnings estimate for the current year has increased 35.2%.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and current valuation.

Industry’s Stock Market Performance

Over the past year, the Zacks Advertising And Marketing industry has underperformed the Zacks S&P 500 composite and the broader sector.

While the industry declined 26.9%, the broader sector and the Zacks S&P 500 composite gained 7.3% and 0.5% respectively.

Industry’s Current Valuation

On the basis of forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing advertising and marketing stocks, the industry is currently trading at 11.02 compared with the S&P 500’s 16.71 and the sector’s 21.8.

Over the past five years, the industry has traded as high as 18.41X, as low as 10.64X and at the median of 15.10X, as the charts below show.

Bottom Line

The industry should be able to tide over the challenges going forward as companies revamp their marketing efforts to adapt to changing consumer behaviors and new disruptive competitors.

While none of the stocks in our advertising and marketing universe currently hold a Zacks Rank #1 (Strong Buy), Omnicom Group Inc. (OMC) carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Moreover, we believe investors should retain Clear Channel Outdoor Holdings, Inc. (CCO), National CineMedia, Inc. (NCMI) and WPP plc (WPP) in their portfolios as these stocks carry a Zacks Rank #3 (Hold).

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