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Interpublic (IPG) Benefits From Organic Growth and Buyouts

Zacks Equity Research

So far this year, shares of The Interpublic Group of Companies, Inc. IPG have gained 6.5% compared with 7.5% rise of the industry it belongs to and 11.2% increase of the Zacks S&P 500 composite.

 

Recently, the company delivered impressive first-quarter 2019 results, with earnings and revenues beating the Zacks Consensus Estimate. Adjusted earnings of 11 cents per share beat the consensus estimate by 5 cents and improved on a year-over-year basis. Net revenues of $2.00 billion surpassed the consensus mark by $48 million and increased 13% on a year-over-year basis.

Interpublic has an impressive earnings surprise history, having outpaced estimates in three of the last four quarters. The company delivered average positive earnings surprise of 24.4%.

What’s Driving Interpublic?

Solid Business Model

Interpublic’s digital capabilities, diversified business model and geographic reach offer distinct competitive advantage. The company is expected to achieve targeted levels in the upcoming quarters, based on diversification across emerging regions and collaboration/integration across agencies through technological improvement. It continues to look for investment opportunities and acquisitions to expand in high-growth regions and key global markets.

Robust Organic Growth

Interpublic’s top line continues to grow organically driven by growth across its major geographic regions and contributions from net client wins and net higher spending from existing clients (especially in the healthcare sector). The company witnesses organic growth in the United States backed by media and advertising disciplines. Strong performance of advertising and media businesses in Continental Europe, Latin America and the U.K. regions also boost organic growth.

In first-quarter 2019, organic net revenue growth was 6.4% with 5.7% growth in the United States and 7.7% in international markets. For 2019, the company expects organic revenue growth of 2-3%.

Acquisitions: A Major Growth Catalyst

Interpublic has been continuously acquiring and investing in companies globally to expand product portfolio as well as adapt to rapidly changing marketing services and the media market. In 2018, the company completed three acquisitions. These include the buyout of data-related and analytical services provider, Acxiom LLC in October; London-based social creative agency That Lot through its subsidiary — Weber Shandwick — in July; and Brazil-based digital marketing and technology agency, Cappuccino in May. Full-year 2018 revenues include $181.7 million in relation to the Acxiom acquisition and a positive impact of 1.8% from net acquisitions.In first-quarter 2019, net acquisitions had a positive impact of 9.4% on the company’s top line growth.

In recent years, the company has acquired agencies across the marketing spectrum, which include firms specializing in digital, mobile marketing, social media, healthcare communications and public relations as well as agencies with full-service capabilities.

Zacks Rank & Other Stocks to Consider

Currently, Interpublic carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Some other top-ranked stocks in the broader Zacks Business Services sector are Navigant Consulting NCI, WEX WEX and FLEETCOR Technologies FLT. While Navigant Consulting sports a Zacks Rank #1, WEX and FLEETCOR carry a Zacks Rank #2.

Long-term expected EPS (three to five years) growth rate for Navigant Consulting, WEX and FLEETCOR is 13.5%, 15% and 16.5%, respectively.

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