Advertising and marketing services provider The Interpublic Group of Companies, Inc. (IPG) operates in two segments worldwide: Integrated Agency Networks (IAN) and IPG DXTRA. Despite the challenging macroeconomic environment, the company has delivered solid fourth-quarter results, driven by strategic investments and partnerships. At a time when digital media ad spending is growing substantially, IPG’s diversified business model and enhanced digital capabilities should position it well in the advertising sector.
The stock has gained 110.6% over the past year and 67.6% over the past six months. The gradual return of consumer mobility and economic recovery this year, amid large-scale vaccination drives, should prompt most industry verticals to grow their advertising budgets significantly. This should bode well for IPG and allow it to sustain its momentum in the near term.
Given the company’s higher profitability, strategic collaboration and expanding product offerings, we think the stock is worth betting on now.
Here is what we think could shape IPG’s performance in the coming months:
Strategic Collaboration With TikTok
On April 6, IPG Mediabrands teamed with TikTok to lead an exclusive creator and content accelerator initiative to connect brands with culture. The initiative should enable IPG Mediabrands’ agencies and clients to access TikTok’s unique first-to-market opportunities and resources, as well as research and media trial opportunities. Also, this collaboration should allow IPG to deliver strong shareholder value and help its clients tap into TikTok’s unique platform.
Advertising Industry’s Faster Than Expected Rebound
Even though the pandemic negatively impacted the advertising and marketing with a decline in commercial activities, ad spending has been recovering quickly with most industries ramping up their spending this year. Advertising spending is expected to see an annual growth rate of 4.95%, culminating in a market volume of $82.19 billion by 2025. In fact, an increase in digital marketing due to the rising number of internet users and electronic device usage should drive the growth of leading advertising companies like IPG.
Higher Profitability
IPG’s 12.5% trailing-12-month EBIT is 25.4% higher than the industry average 9.9%. Its trailing-12-month levered free cash flow and net income margins of 19.8% and 4.4%, respectively, are 73.9% and 58.2% higher than industry averages of 11.4% and 2.8%, respectively. The company’s trailing-12-month ROE, ROA and ROTC of 12.4%, 2% and 7.8%, respectively, compare favorably with industry averages.
Discounted Valuation
In terms of forward P/E, IPG is currently trading at 15.95x, 21.5% lower than the industry average 20.31x. Its forward EV/Sales multiple of 1.75x is 37.3% lower than the industry average 2.79x. Also, the stock’s forward EV/EBIT ratio of 12.59x is 30.4% lower than the industry average 18.08x.
POWR Ratings Indicate Solid Prospects
IPG has an overall rating of B, which translates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. IPG has a Growth Grade of B, which is in sync with the stock’s solid growth prospects.
In terms of Quality Grade, IPG has a B. It also has a Momentum Grade of B. The company’s higher profitability and growing share prices justify these grades.
Click here to see the additional POWR Ratings for IPG (Stability, Sentiment, and Value).
IPG is ranked #3 of 14 stocks in the D-rated Advertising industry.
If you’re looking for other top-rated stocks in the same industry, with an Overall POWR Rating of A or B, you can access them here.
Bottom Line
IPG’s focus on enhancing its digital media platform give it a competitive advantage over its peers. Because the advertising marketplace has rebounded quicker than expected due to the ongoing digital transformation that has led businesses to rapidly shift their budgets to digital advertising, we think IPG is well positioned to capitalize. Hence, we think the stock is an appropriate investment proposition now.
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IPG shares were trading at $30.30 per share on Monday morning, down $0.30 (-0.98%). Year-to-date, IPG has gained 30.17%, versus a 11.71% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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