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Still Neutral on OMC

Zacks Equity Research

We continue to uphold our Neutral view on Omnicom Group Inc. (OMC).

We are still optimistic about the company’s strong operational performance in the UK and US market as well as across Asia and Latin America. This, we believe, will be reflected in the upcoming quarter results. We expect auto, food and beverage, retail and technology businesses, alongside sports media and entertainment to work as a key factor to augment such growth.

The recent demand upsize for media services, speedy growth of technologies and massive proliferation of channels are likely to encourage the company’s future growth. Leveraging this opportunity, the Company’s state-of-the-art digital solutions will access the current information in the market.

Omnicom concentrates on acquisition of complementary companies, which are expected to heighten the company’s digital capabilities, thereby expanding its client base. Additionally, the company’s balance sheet looks sound enough to stimulate further acquisitions and investments in the near future.

Omnicom, one of the largest advertising, marketing and corporate communications companies in the world, continue to offer cost-effective marketing services in the field of advertising and marketing communications. These are further expected to ameliorate the margins in fiscal 2012. Such features boost investors’ confidence on the company above its peers, such as The Interpublic Group of Companies Inc. (IPG), Publicis Groupe SA (PUBGY) and WPP plc. (WPPGY). 

However, the flipside scenario remains a matter of concern. Omnicom functions in an extremely competitive environment, which requires exclusive service offerings to attract customers while retaining existing associations. This involves huge cost, thus depressing margins.

Furthermore, there always remains a risk of relying on big clients as the company may face difficulties with customer spending cuts. The current cost inflation pressurizing price structure cannot also be overlooked.

The company is highly exposed to the risk of foreign exchange barriers and uncertainty from monetary devaluation. Also, the current cost inflation worldwide is continuously burdening the price structure of the Company and affecting its margins.

Omnicom holds a Zacks #3 Rank, which translates into a short-term (1-3 months) ‘Hold’ rating.

Read the Full Research Report on OMC

Read the Full Research Report on WPPGY

Read the Full Research Report on IPG

Read the Full Research Report on PUBGY

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