We are maintaining our Neutral recommendation on Interpublic Group of Companies Inc. (IPG).
We are optimistic on the company’s digital capabilities, diversified business model and geographic reach that offer distinctive quality and a competitive advantage to its clients. In addition, the Group is always on the look out for strategic investments/acquisitions to expand in high-growth and key world markets.
The company plans to focus on additional debt reduction opportunities to improve its balance sheet and reduce effective cost of debt. During the second quarter, the company delivered above-average organic revenue; managing the costs side effectively. The results also demonstrated improved labor costs and staff cost ratio.
The company is expected to achieve targeted levels in the coming quarters based on its diversification across emerging regions and collaboration/integration across agencies. The Group’s best-in-industry talent and tools are expected to offer optimal and affordable solutions, thus rendering an edge over its peers, Omnicom Group Inc. (OMC), Publicis Groupe SA (PUBGY) and WPP plc (WPPGY).
However, the company is not free from the risks of a competitive environment. Agencies and media services compete with other agencies and creative or media services providers to maintain existing client relationships and to win new clients. Such keen competition may depress profits as well. Moreover, constrained marketing budgets from big clients are anticipated to slow down organic growth.
Group’s international operations are exposed to all kinds of risks that affect foreign operations. These risks may limit IPG’s ability to grow its business and effectively manage its operations in foreign shores.
The company depends on a few significant customers for a large proportion of its revenues. Thus, a loss of any of these key clients would substantially impact the company’s business.
The company holds a Zacks #3 Rank, which translates into a short-term (1-3 months) Hold rating.
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