London-based WPP plc (WPP) is a creative transformation company that delivers international communications, experience, commerce, and technology services. The company also advises customers who want to engage with various stakeholders, including consumers, governments, and the business and financial communities. WPP has a five-year average dividend yield of 4.71%. Its current dividend translates to a 4.3% yield. It has a payout ratio of 50.7%.

In April, WPP unveiled ‘Everymile,’ expanding its offering with a new fully managed service that would give businesses an outsourced direct-to-consumer (DTC) e-commerce solution. Everymile expands WPP’s current worldwide omnichannel commerce capabilities in strategy, customer experience, and technology development by adding demand creation, online trading and merchandising supply chain, and logistics. With the introduction of Everymile, WPP becomes the first firm in its category to provide an end-to-end e-commerce solution.

However, its stock is down 31.1% over the past year and 35.1% year-to-date to close yesterday’s trading session at $49.00. In addition, last month, analysts at Morgan Stanley downgraded the stock from an “equal weight” rating to an “underweight” rating.

Here’s what could shape WPP’s performance in the near term:

Mixed Profitability

WPP’s trailing-12-month gross profit margin of 17.2% is 66.1% lower than the industry average of 50.7%. Its trailing-12-month EBITDA margin and asset turnover ratio are 42.7% and 13.7% lower than their respective industry averages. However, its trailing-12-month ROC and ROA are 38.4% and 1.6% higher than their respective industry averages.

Discounted Valuation

In terms of forward EV/EBIT, the stock is currently trading at 7.02x, 50.9% lower than the industry average of 14.32x. Also, its forward non-GAAP P/E of 8.49x is 48.6% lower than the industry average of 16.49x. Moreover, WPP’s forward EV/Sales of 1.07x is 45.5% lower than the industry average of 1.96x.

POWR Ratings Reflect Uncertainty

WPP has an overall C rating, which equates to a Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated 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. WPP has a B grade for Value and a C for Quality. The company’s lower-than-industry valuation is in sync with the Value grade. In addition, its mixed profitability is consistent with the Quality grade.

Of the 21 stocks in the C-rated Advertising industry, WPP is ranked #7.

Beyond what I’ve stated above, you can view WPP ratings for Growth, Stability, Momentum, and Sentiment here.

Bottom Line

WPP’s continued efforts to boost its operational performance through various strategic partnerships should bode well for the stock in the long term. However, the stock is currently trading below its 50-day and 200-day moving averages of $59.81 and $68.92, respectively, indicating a downtrend. Moreover, analysts expect its EPS to decline at the rate of 3.7% per annum over the next five years. So, we think investors should wait before scooping up its shares.

How Does WPP Plc (WPP) Stack Up Against its Peers?

While WPP has an overall C rating, one might want to consider its industry peers, Cimpress PLC (CMPR), Criteo S.A. (CRTO), and Transcontinental Inc. (TCLAF), which has an overall B (Buy) rating.

WPP shares were trading at $49.47 per share on Friday afternoon, up $0.47 (+0.96%). Year-to-date, WPP has declined -33.05%, versus a -22.56% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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