Global marketing and corporate communications firm Omnicom Group Inc.OMC is scheduled to report fourth-quarter 2016 results before the opening bell on Feb 7. In the last reported quarter, earnings beat the Zacks Consensus Estimate by 3 cents. Omnicom's earnings track record has been decent, having beaten estimates on three occasions in the trailing four quarters for an average beat of 1.96%.
Let's see how things are shaping up for the upcoming fourth-quarter results.
Key Factors in the Quarter
A significant portion of Omnicom's revenues comes from Europe. In the present scenario, when the economy in the region is highly unpredictable particularly after the Brexit referendum, it becomes difficult for the company to increase revenues and reduce costs. Brexit could further result in higher tariff and non-tariff barriers to trade between the U.K. and the European Union, lowering the productivity of the company. In addition, the company is susceptible to market risks of losing contracts related to media purchases and production costs. This is likely to affect its bottom line and undermine its organic growth to some extent.
Furthermore, a significant portion of the revenues is derived in various currencies other than the U.S. dollar. This is likely to adversely impact the company's financial results due to volatility in currency exchange rates. As the company expands its international operations, it highly exposes itself to risks from foreign exchange barriers and uncertainty from monetary devaluation. The company also faces huge concentration risks as it relies on a few big clients for its businesses. These developments might prove to be a strain on Omnicom in the impending quarter.
For the to-be-reported-quarter, Omnicom's revenues are anticipated to be marred by uncertainty in the domestic markets by the then prevailing U.S. Presidential election campaigns. In addition, client spending patterns in the global markets are likely to be constrained by a challenging macroeconomic environment and geopolitical scenario.
Our proven model does not conclusively show that Omnicom is likely to beat earnings this quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below:
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at -2.06%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .
Omnicom Group Inc. Price and EPS Surprise
Zacks Rank: Omnicom has a Zacks Rank #4.
As it is we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.
Stocks to Consider
Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
LPL Financial Holdings Inc.LPLA has an Earnings ESP of +2.78% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .
Moody's CorporationMCO has an Earnings ESP of +0.89% and a Zacks Rank #3.
CubeSmartCUBE has an Earnings ESP of +2.70% and a Zacks Rank #3.
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