We upgrade our recommendation on the world's third largest advertising agency , The Interpublic Group of Companies Inc. ( IPG ).
The company delivered strong organic revenue growth during the third quarter, driven by a strategic business mix across all marketing disciplines, including domestic as well as major international economies. The group's continued investment strategy in order to diversify across emerging markets and capitalize on technological collaboration across agencies, looks impressive.
Interpublic Group maintains a strict cost control strategy which over time has sheltered the company through the challenging revenue environment and positioned it for future growth and profitability. We believe that the company's focus on moderating expenses will continue to counter rising cost pressures; conforming to the margin targets of 9.5% for FY11.
However, slower-than-expected global GDP growth, witnessed in 2011, impacted the company's organic revenue. This cannot be overlooked. Rather, it remains a cause of concern for the company's upcoming quarters, as the US economy is in the shadow of an ongoing global crisis.
Moreover, international operations of the Interpublic Group are exposed to foreign operational risks, including local legislation, monetary devaluation, exchange control restrictions and change in exchange rate, alongside unstable political conditions.
Adding to the peril is the risk of overt dependence of a few significant customers, which looks threatening as a shift in accountability may materially impact the company's financial results. Such instabilities may further limit business growth while inducing account loss headwinds in the coming fiscal.
The advertising industry has become even more competitive and dynamic with the proliferation of media channels and rapid development of interactive technologies over the last few years. Hence, in order to withstand such competitive pressures, Interpublic Group has been offering optimal and affordable solutions to its clients -- designing a customized mix of advertising and marketing communications services. This looks impressive enough for the group to combat the competitive forces and win new patrons.
Furthermore, Interpublic Group remains committed to returning value to shareholders driven by a strong liquidity position. Besides, customary dividend payments coupled with an increase in existing share repurchase program shore up such a view.
The company directly competes with its peers, such as Omnicom Group Inc. ( OMC ), Publicis Groupe SA and WPP plc ( WPPGY ). Interpublic Group has a Zacks #1 Rank, which translates into a short-term Strong Buy rating (1-3 months).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.