Omnicom Group Inc. (OMC) is a New York-based global marketing and corporate communications company. It is engaged in providing brand advertising, customer relationship management, public relations, and media planning to more than 5,000 clients in more than 70 countries. It provides a range of services in the areas of advertising, CRM consumer experience, CRM execution & support, public relations, and healthcare.
OMC was one of the worst hit stocks in 2020 with its revenues impacted severely by the public health crisis. Its worldwide revenue in the third quarter ended September 30, 2020 decreased 11.5% year-over-year to $3.2 billion, while organic growth in the advertising segment declined 11.7% during the quarter. However, OMC’s EPS came in at $1.45, rising nearly 10% compared to the year-ago value.
With corporations cutting their marketing spend significantly to save costs amid the pandemic, OMC’s the stock lost 22% in 2020. However, the improvement in digital advertising spending expected this year, and potential upside anticipated based on several other factors, have helped OMC a “Buy” in our proprietary rating system.
Here is how our proprietary POWR Ratings system evaluates OMC:
Trade Grade: B
OMC is currently trading higher than its 50-day and 200-day moving averages of $60.18 and $55.28, respectively, indicating that the stock is in an uptrend. In fact, the stock’s 21% gain over the past three months reflects solid short-term bullishness.
OMC recently became the first agency to integrate its in-house tool, Omni, in a new partnership with OpenAP, an advanced advertising company. OpenAP announced the launch of its new supply-side platform (SSP) that provides advertisers access to available linear inventory from TV publishers and aims to deliver more transparency and visibility of the TV marketplace.
OMC’s Credera, a global boutique consulting firm focused on strategy, transformation, data, and technology, continues its rapid expansion strategy with the launch of a new office in Los Angeles to support its growing roster of clients in the United States.
Buy & Hold Grade: C
In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers, OMC’s positioning is not impressive. The stock is currently trading 21.4% below its 52-week high of $81.00.
Over the past five years, the stock has gained 7.8% as the company moved to adjust to the structural shift from traditional advertising agencies to digital marketing. Though OMC’s top-line has declined at a CAGR of 4% over the past three years, its free cash flow has grown at a rate of 9% during the same period.
Although major companies suspended or trimmed their dividend payouts amid the crisis, OMC maintained its dividend payouts and remains one of the few that has. With a four-year average dividend yield of 3.5%, OMC’s annual dividend of $2.60 represents a 4.08% yield.
OMC has been investing in the areas of crisis communications, custom publishing, data analytics, insights, database management, precision marketing, and digital transformation services for more than a decade now. These investments have aided it in delivering consumer-centric strategic business solutions and in long-term sustainability and profitability.
Peer Grade: C
OMC is currently rated #3 of 13 stocks in the Advertising industry. Other popular stocks in the group are WPP plc (WPP), Interpublic Group of Companies, Inc. (IPG) and Digital Media Solutions, Inc. (DMS). While DMS has gained 68% in the past three months, IPG and WPP have returned 36.7% and 30.8%, respectively, over this period.
Industry Rank: C
The StockNews.com Advertising industry is ranked #77 of 123 industries. The companies in this industry specialize in advertising, marketing, and corporate communications services worldwide. The coronavirus pandemic resulted in a significant decline in marketing and advertising spending from companies worldwide. However, the gradual opening of the economy is expected to motivate companies to increase their investments in marketing and advertising this year, although at a slower pace.
Overall POWR Rating: B (Buy)
Overall, OMC is rated a “Buy” due to its strong business model, extensive digital advertising offerings, short-term bullishness, and steadily recovering corporate marketing spending, as determined by the four components of our overall POWR Rating.
The sharp growth of digital media is posing a serious challenge to the outmoded advertising industry business. The coronavirus pandemic has probably made things worse because it has accelerated the growth in e-commerce and digital marketing relative to traditional advertising. As a result, some agencies are struggling to stay afloat.
OMC has been able to survive due to its quick digital transformation. A customer-centric approach to business and cost-management initiatives make OMC well-positioned to deliver exceptional returns as the economy gradually recovers this year we think.
Analyst sentiment, which gives a good sense of a stock’s future price movement, is good for OMC. An average broker rating of 1.93 indicates favorable analyst sentiment. Of 11 Wall Street analysts that rated the stock, 4 advised buying OMC. Analysts expect current-year revenue and EPS to grow 5.2% and 12.4% year-over-year, respectively. This outlook should keep OMC’s price momentum alive this year.
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OMC shares were trading at $63.56 per share on Tuesday morning, down $0.14 (-0.22%). Year-to-date, OMC has gained 1.91%, versus a 1.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
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