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What's in Store for Interpublic (IPG) This Earnings Season?

Zacks Equity Research
Updated

Interpublic Group Of Companies, Inc. IPG is scheduled to report second-quarter 2016 results before the opening bell on Jul 21. Last quarter, the company reported a positive earnings surprise of 100%. Notably, over the trailing four quarters, the company delivered an average positive surprise of approximately 31.59%.

New York-based Interpublic is one of the world’s leading companies providing marketing and advertising services. Interpublic is an integral part of the communication industry and is highly competitive in nature. Headwinds in the currency market have left investors a little edgy about what the quarter holds for them.

Our proven model does not conclusively show that Interpublic will beat earnings this time. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at 0.00%.

Zacks Rank:  Interpublic has a Zacks Rank #4, which along with a 0.00% ESP makes an earnings beat unlikely this season.

As it is, we caution against stocks with a Zacks Rank #4 and #5 going into the earnings season, especially when the company is seeing negative estimate revisions.

INTERPUBLIC GRP Price and EPS Surprise

INTERPUBLIC GRP Price and EPS Surprise | INTERPUBLIC GRP Quote

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Factors to Influence Q2 Results

Interpublic derives a major portion of its revenues from outside the U.S. This exposes the company to foreign currency translation impacts. A stronger dollar can have an adverse impact on second-quarter revenues. In addition, the company faces other risks like local legislation, monetary devaluation, exchange control restrictions and unstable political conditions, which may hamper revenue growth in the to-be-reported quarter.

Uncertainties regarding Brexit affected the markets through the latter half of the second quarter of 2016, leading to the referendum in late June. These macroeconomic risks make companies cautious about advertising and marketing outlay, thereby squeezing advertising budgets. This might prove to be a strain on Interpublic’s upcoming quarterly results. Also, advertising companies are currently under pressure as major advertising spenders are reviewing their agency accounts.

However, Interpublic’s digital capabilities, diversified business model and geographic reach offer a distinctive competitive advantage to its clients. The company is expected to achieve targeted levels in the coming quarters based on diversification across emerging regions and collaboration/integration across agencies through technological improvement. Moreover, the company continues to look for strategic investments/acquisitions to expand in high-growth regions and key world markets.

For 2016, the company has a cautious stance and expects organic revenue growth of 3-4%, with 50 basis points of operating margin improvement over the previous year.

Stocks That Warrant a Look

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

HNI Corp.HNI has an Earnings ESP of +8.20% and a Zacks Rank #1. It is scheduled to report on Jul 21.

The Earnings ESP of Reliance Steel & Aluminum Co. RS is +3.05% and it has a Zacks Rank #2. The company is expected to report on Jul 21.

AT&T, Inc. T has an Earnings ESP of +2.82% and a Zacks Rank #2. It is expected to release results on Jul 21.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
AT&T INC (T): Free Stock Analysis Report
 
INTERPUBLIC GRP (IPG): Free Stock Analysis Report
 
RELIANCE STEEL (RS): Free Stock Analysis Report
 
HNI CORP (HNI): Free Stock Analysis Report
 
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Zacks Investment Research