On Sep 4, we maintained our Neutral recommendation on
advertising and marketing services major
The company has been maintaining its dominant market position
over time and is expected to sustain the same going forward.
Moreover, WPP's strategic acquisitions and cost reduction
initiatives in the backdrop of an improved demand is likely to
ensure future growth. However, concentration risks, foreign
currency exposure, and stiff competition from other players in
the market could undermine its profitability to some extent.
Why the Reiteration?
On Aug 29, WPP reported flat first-half fiscal 2013 earnings
of £280.9 million ($433.7 million) or £0.215 per share ($0.33 per
ADS) compared with £277.8 million ($428.9 million) or £0.216 per
share ($0.33 per ADS) in the first half of 2012.
Revenues increased 7.1% year over year to £5,326.7 million
($8,224.9 million). The rise was driven by 2.4% organic growth,
3.1% inorganic growth and 1.6% gains due to the effects of
currency exchange rates. On a geographic basis, revenues in North
America climbed 5.3% year over year to £1,840 billion ($2.841.1
million). Moreover, In the Asia Pacific, Latin America, Africa,
the Middle East as well as Central and Eastern Europe, revenues
rose 7.9% year over year to £1,560 million ($2,408.8 million).
Additionally, Western Europe delivered healthy performance as
Moreover, the company reported strong billings that increased
5% year over year to £22.7 billion ($35.1 billion).
Following the release of second-quarter results, the Zacks
Consensus Estimate for fiscal 2013 increased to $6.33 per share
from $6.31. Moreover, the Zacks Consensus Estimate for fiscal
2014 rose to $7.03 per share from $7.00.
Acquisitions have been the company's primary tool to
strengthen its foothold in new and emerging markets. It completed
65 acquisitions worldwide across all its business segments in
2012. Moreover, during the first half of 2013, WPP completed 26
acquisitions. Additionally, the primary focus of the company is
to grow its revenues and gross margin at a faster rate than the
However, WPP operates in a highly competitive and fragmented
communication services industry and faces the risk of its clients
shifting their loyalty to another agency at a relatively short
notice, which might lead to loss in market share. Moreover, WPP
depends on a limited number of big clients for a significant
portion of its revenues, which again poses a threat to its
Other Stocks to Consider
WPP currently carries a Zacks Rank #2 (Buy). Some other stocks
in the industry that are worth a look include
Publicis Groupe SA
Services Group, Inc
Corporate Executive Board Co.
). All these carry a Zacks Rank #2.
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