New York-based Interpublic, together with its subsidiaries, provides advertising and marketing services worldwide. It is reportedly the third largest advertising company in the world. The company offers a range of advertising and marketing communication services, as well as marketing services, along with public relations (PR), meeting and event production, sports and entertainment marketing, corporate and brand identity, and strategic marketing consulting services to a broad list of customers in more than 100 countries.
Interpublic has outperformed the Zacks categorized Advertising and Marketing industry in the last three months, with an average return of 4.2% compared with a return of 0.3% for the latter. Interpublic expects to strengthen its position with respect to new business activities as well as opportunities from existing and new clients. Its impressive results were driven by revenue growth as well as successful cost streamlining initiatives.
This Zacks Rank #3 (Hold) stock expects the growth momentum to continue as its leverages new business wins to improve its growth outlook. Going by the Zacks model, companies carrying a Zacks Rank #3 have high chances of performing in line with the broader market in the quarters ahead. The improving position of the agencies whether in PR, healthcare communications, sports and entertainment, or interactive marketing, gains industry recognition on a continuous basis, auguring well for its long-term growth
The company plans to focus on de-leveraging and improving its balance sheet and reducing effective cost of debt. Its best-in-industry talent and tools are expected to offer optimal and affordable solutions, thus rendering an edge over its peers. The company's efforts in reducing costs, continuous margin improvement, stronger balance sheet and better capital structure work aid in increasing returns and profitability.
However, the company faces concentration risks as it depends on a few significant customers for a large proportion of its revenues. A reduction in advertisement spending from any of the customers can significantly dent the company's revenues. Moreover, constrained marketing budgets from big clients are expected to slow down organic growth and lead to account loss headwinds for Interpublic, going forward.
Interpublic derives a major portion of its revenues from outside the U.S. This exposes the company to foreign currency translation impacts particularly after the Brexit and poses a threat to its growth. The company is likely to be stifled by the renegotiated deals and restrictions imposed on trade with other European Union members. Brexit could further result in higher tariff and non-tariff barriers to trade between the U.K. and the European Union, lowering productivity of the company. In addition, Interpublic also faces other risks like local legislation, monetary devaluation, exchange control restrictions and unstable political conditions, which may hamper revenue growth and impact its financial position as well.
We remain encouraged by the inherent growth potential of this stock. Some better-ranked stocks in the industry include Avis Budget Group, Inc. CAR , WageWorks, Inc. WAGE and Vectrus, Inc. VEC . All three stocks sport a Zacks Rank #1(Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
Avis Budget is currently trading at a forward P/E of 10.4x. The company is a leading provider of vehicle rental services, with operations in more than seventy countries.
WageWorks has a long-term earnings growth expectation of 15% and is currently trading at a forward P/E of 55.8x.
Vectrus is currently trading at a forward P/E of 16.8x. The company has a modest earnings surprise history with an average positive earnings surprise of 4.2% in the trailing four quarters, beating estimates twice.
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