Dublin, Ireland-based advertising titan,
WPP Group Plc.
) was again rated Neutral by us, anticipating the company to
perform in line with the market.
This $16.9 billion company over time has strengthened its foothold
in fast growing emerging markets through acquisitions or
investments in businesses across the world; all aimed at enabling
access to vast untapped markets in those regions.
Strategic business acquisitions in 2011 amounted to 24 in new
markets, 32 in new media and 8 in consumer insight. In the first
half of 2012, roughly 20 acquisitions in new markets, 13 in
consumer insight and 7 in other areas were carried out. These
acquisitions represent a major competitive advantage for the
company and enhance its creative reputation and co-operation among
the Group companies.
First half of 2012 was impressive for WPPGY with EPADR of $2.03 in
the period, up from $1.84 compared with the previous year period.
Revenue grew 5.5% or 6.8% on a constant currency basis on the back
of healthy performances across all geographical regions and
communication service sectors. Billings in the period were strong
and grew 1.2%.
For the full year 2012, management expects revenue growth,
excluding the impact of acquisitions and currency fluctuations, to
be roughly 3.5%. Operating margins are expected to improve by 50
basis points. Over the longer term, management expects
above-industry average revenue growth, 0.3 to 0.6 points annual
improvement in staff cost/revenue ratio and 0.5 margin points or
more improvement in operating margin. PBIT is expected to improve
by 10%-15% p.a. on the back of margin growth and benefits from
small and medium-sized acquisitions.
However, a competitive and fragmented advertising/communication
industry with risks of losing market share and foreign exchange
fluctuations ever lurking in the scenario is a matter of constant
worry for the company. Also, the company's international operations
expose it to the risks of local legislation and unstable political
conditions. Furthermore, excessive dependence on a few large
clients also makes the company more vulnerable to loss of business.
The current Zacks Consensus EPS Estimates for WPP plc are $5.57 and
$6.06 for years 2012 and 2013, respectively. The estimates
represent a year-over-year growth of 3.53% for 2012 and 8.82% for
The stock also bears a Zacks #3 Rank, implying a short-term (1-3
months) Hold rating while its major competitors
Interpublic Group of Companies Inc.
Omnicom Group Inc.
) also carry a Zacks #3 (Hold) Rank.
INTERPUBLIC GRP (IPG): Free Stock Analysis
OMNICOM GRP (OMC): Free Stock Analysis Report
WPP PLC (WPPGY): Free Stock Analysis Report
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