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Will Omnicom (OMC) Surprise this Earnings Season?

Zacks Equity Research

Omnicom Group Inc (OMC) is scheduled to report second-quarter 2014 results before the opening bell on Jul 22. In the last reported quarter, the reported earnings of the company beat the Zacks Consensus Estimate by a penny.  Let’s see how things are shaping up for this announcement.

Factors to Consider

Omnicom is concentrating on strengthening its business and expanding its client base globally through the acquisition of complementary companies. Omnicom announced the acquisition of U.K.-based brand and retail agency Haygrath by its subsidiary RAPP.  The integration is expected to enable RAPP gain a better foothold in the total customer experience spectrum, by providing expert marketing and communications solutions. Earlier in May 2014, Omnicom’s TBWA Worldwide completed the acquisition of an independent German advertising agency Heimat for an undisclosed amount. Heimat enhances Omnicom’s portfolio with its creative products as well as its long-term relationships with national and international brands. We expect the company to witness increased revenues and income on the back of these acquisitions in the imminent future.

However at the same time, Omnicom and Publicis Groupe SA (PUBGY) terminated their $35 billion merger proposal, putting an untimely stop to a deal that would have possibly created the world’s largest advertising agency. The deal was called off due to regulatory hurdles, management conflicts and complication in finishing the transaction within a rational time period. If the merger had been successful, the consolidated entity would have handled eminent corporate clients.

Also, a significant portion of Omnicom’s revenues comes from Europe. In the present scenario, when the economy in the region is highly unpredictable, it becomes difficult for the company to increase revenues and reduce costs. In addition, the company is susceptible to market risks of losing contracts related to media purchases and production costs, which thereby affects its bottom line and undermines its organic growth to some extent.

Earnings Whispers

Our proven model does not conclusively show that Omnicom will beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, #2 or #3 for this to happen. This is not the case here as you will see below.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is pegged at 0.00%. This is because both the Most Accurate Estimate and Zacks Consensus Estimate currently stand at $1.17.

Zacks Rank #2 (Buy): Omnicom’s Zacks Rank #2 (Buy) when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

Here are some companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat in the future.

Arch Capital Group Ltd. (ACGL) earnings ESP of +5.10% and Zacks Rank #2 (Buy).

ConocoPhillips (COP) earnings ESP of +3.73% and Zacks Rank #1 (Strong Buy).


Read the Full Research Report on COP
Read the Full Research Report on OMC
Read the Full Research Report on PUBGY
Read the Full Research Report on ACGL

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