Analyst Actions: WPP Downgraded by Pivotal to Hold From Buy, Price Target Kept at GBP15.80

WPP ( WPP ) received an investment-rating downgrade Tuesday to hold from buy from Pivotal Research Group after recent gains in the agency-holding company's London-traded shares brought them closer to their price target from the firm.

Pivotal's price target on WPP's London-traded shares is GBP15.80. The shares had climbed 5.7% in the past week and were up 11% over the past three months to trade at GBP14.15 in recent London trading.

WPP's American depositary shares have posted even stronger recent percentage gains, up 15% in the past week and up 22% over the past three months to close at $102.48 Friday. The American depositary shares edged down 3.7% to $98.66 in recent Tuesday pre-market trading .

Pivotal noted to clients it had upgraded its investment rating on WPP's stock to buy from hold in November amid what it saw as an overreaction to the downside "because of a range of issues impacting the industry became pronounced concerns for investors."

The firm also has hold investment ratings on the shares of rival agency-holding companies Omnicom Group ( OMC ), Interpublic Group ( IPG ) and Publicis, with the latter two also being downgraded to hold Tuesday. The firm said "following relatively positive moves on the sector for IPG and Publicis, we see stocks in the sector as close enough to full valuations to warrant a downgrade at the present time."

For time horizons beyond 2018, Pivotal said "we continue to look at the sector favorably, as we think that agencies are durable businesses, and flexible ones, too. Further, we believe that opportunities to share real estate and back office activities and cross-sell services supports operating leverage that supports margin improvement on an ongoing basis."

Nevertheless, for the near term, the firm said "significant challenges remain and will probably suppress organic revenue growth this year, much as they did last year. Those factors include slow growth for core clients and the application of zero-based budgeting tactics, the ongoing impact on fees from enhanced scrutiny of contracts, like-for-like fee compression, threats of wider-scale in-housing of programmatic buying and creative content production, slowing shifts of spending into digital media among the clients agencies serve and competitive threats from consulting and [information-technology] services firms."

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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