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Interpublic Group: Few Reasons to Be Long

ovenerio

ovenerio

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In this article, let's take a look at Interpublic Group of Companies Inc. (IPG), this global advertising holding company, which has experienced a share price uptrend since April. Moreover, this Zacks Rank #2 (Buy) stock has solid fundamentals that may drive the stock upward in the future.

The Largest Acquisition

Weber Shandwick, the public relations (PR) unit of Interpublic has acquired Swedish creative PR agency Prime and its business intelligence division United Minds. The company is headquartered in Stockholm, the agency specializes in a broad spectrum of integrated marketing services, including business intelligence, public affairs, corporate communications, digital and social media and crisis management.The synergies generated under the deal are expected to drive innovation further and improve client service. Further, the acquisition will help the firm to expand its footprint in the Nordics.

Good News

Omnicom (OMC) and Publicis (PUBGY) have agreed to merge in an all-stock transaction and a $35 billion revenue company could be created. Recently it was announced that both companies ended their planned merger due to difficulties in completing the transaction within a reasonable time frame. Let´s remember that with the deal, a modification of the competitive landscape could happened, leaving IPG with a size disadvantage to its two larger peers. So we think this is good for IPG.

Stronger Balance Sheet

IPG plans to improve its balance sheet while reducing effective cost of debt. It also remains committed to returning value to shareholders through share repurchases and common stock dividends.

IPG has a strong balance sheet, good level of cash that allows it to reward current shareholders through higher dividends. The company recently announced a quarterly dividend, in which investors will be paid a dividend of $0.095 per share. According to company´s report, dividends have been paid since 2011 and with a current dividend yield of 1.75%, we believe IPG remains well positioned to comfortably increase its dividend in the future.

Relative Valuation and Price Performance

In terms of valuation, the company sells at a trailing P/E of 29x, trading at a discount compared to the industry mean.

Ticker

Company

P/E

IPG

IPG

29

OMC

Omnicom Group Inc.

18.9

PUBGY

Publicis Groupe SA

17.8

This ratio indicates that the stock is relatively overvalued when compared to competitors such as Omnicom Group Inc. and Publicis Groupe SA.

In the next graph we can see the price performance in the last three years that showed an interesting upward trend.

1403833061489.png

Final Comment

As outlined in the article, the firm is looking for strategic acquisitions to expand in high-growth markets. It declared that it has acquired Prime, a leading, award-winning creative PR agency in Sweden, and its business intelligence arm United Minds. The company´s efforts in reducing costs and stronger balance sheet will increase returns and profitability.

Other better-ranked stocks in the industry that look promising are Convergys Corp. (CVG), EnerNOC, Inc. (ENOC) and Manpower Group Inc. (MAN). All of these stocks carry a Zacks Rank #1 (Strong Buy).

Hedge fund gurus have also been active in the company in the first quarter of 2014. Gurus like Louis Moore Bacon (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Jim Simons (Trades, Portfolio), Richard Pzena (Trades, Portfolio), Mario Gabelli (Trades, Portfolio) and Steven Romick (Trades, Portfolio) have taken long positions.

Disclosure: Omar Venerio holds no position in any stocks mentioned.

About the author:

ovenerio
We provide independent fundamental research and hedge fund and insider trading focused investigation.

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