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Bright Near-Term Outlook for Advertising and Marketing Industry

Zacks Equity Research

The Zacks Advertising And Marketing industry comprises companies that offer a range of services, including advertising, branding, content marketing, digital/direct marketing, digital transformation, financial/corporate business-to-business advertising, graphic arts/digital imaging, healthcare marketing and communications, and in-store design services.

Here are the industry’s three major themes:

  • The industry is mature and revenues and cash flows remain stable through the economic cycle. This enables industry players to pay out stable dividends.

  • Manufacturing and non-manufacturing activities continue to grow, driven by strength in the U.S. economy. This should keep demand for advertising and marketing services in good shape.

  • Ad agencies are facing digital disruption. Automated algorithms of Alphabet’s Google and Facebook are designed to allocate budgets for clients efficiently and are more cost efficient than traditional agencies. Thus, agencies already providing or shifting to digital marketing stand to gain as they are better positioned to address changing customer needs and face new competitors. According to eMarketer, digital ad spending in the United States and worldwide will grow 19% and 17.6%, respectively in 2019.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Advertising and Marketing industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #63. This rank places it in the top 25% of more than 250 Zacks industries.

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The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term growth prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s consensus earnings estimate for the current year has increased 4.3% since November 2018.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and current valuation.

Industry Underperforms Sector and S&P 500

Over the past year, the Zacks Advertising And Marketing industry has underperformed the Zacks S&P 500 composite and the broader sector.

While the industry gained 10.7%, the broader sector and the Zacks S&P 500 composite have increased 27.8% and 16.1%, respectively.

 

 

Industry’s Current Valuation

On the basis of forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing advertising and marketing stocks, the industry is currently trading at 11.74 compared with the S&P 500’s 16.98 and the sector’s 23.76.

Over the past five years, the industry has traded as high as 18.5X, as low as 10.39X and at the median of 15.25X, as the charts below show.

Bottom Line

The industry is poised to be in good shape in the near to mid-term. A strong economy leading to robust manufacturing and non-manufacturing activities should keep the demand environment healthy.

While none of the stocks in our advertising and marketing universe currently hold a Zacks Rank #1 (Strong Buy), The Interpublic Group of Companies, Inc. (IPG) and National CineMedia, Inc. (NCMI) carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Interpublic have gained 9.3% year to date. The Zacks Consensus Estimate for the company’s 2019 earnings remained unchanged in the past 60 days.

 

 

National CineMedia’s stock has gained 1% in the said time frame and the consensus estimate for its 2019 earnings increased 4.8% in the past 60 days.

 

Further, we believe investors should retain Omnicom Group Inc.(OMC) and InnerWorkings, Inc. (INWK) in their portfolio as these stocks carry a Zacks Rank #3 (Hold).

Omnicom’s stock has risen 12% in the year-to-date period. The Zacks Consensus Estimate for the company’s 2019 earnings remained unchanged in the past 60 days.

 

 

Shares of InnerWorkings have gained 1.9% in the same time period. The consensus estimate for 2019 earnings has increased 4.5% in the past 60 days.

 

 

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Omnicom Group Inc. (OMC) : Free Stock Analysis Report
 
National CineMedia, Inc. (NCMI) : Free Stock Analysis Report
 
Interpublic Group of Companies, Inc. (The) (IPG) : Free Stock Analysis Report
 
InnerWorkings, Inc. (INWK) : Free Stock Analysis Report
 
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Zacks Investment Research