Does The Interpublic Group of Companies Deserve a Place in Your Portfolio?

The Interpublic Group of Companies Inc. (IPG) is a values-driven, data-fueled, and creatively-driven marketing solutions provider. Home to some of the world's best-known and innovative communications specialists, New York City-based IPG’s global brands include Acxiom, Craft, FCB, FutureBrand, Golin, Huge, Initiative, Jack Morton, Kinesso, MAGNA, Matterkind, McCann, Mediahub, Momentum, MRM, MullenLowe Group, Octagon and more.

The company's shares have gained 53.9% in price over the past year and 8.8% over the past six months to close yesterday's trading session at $36.48.

With its continuing effort to offer superior products and services to its clients, the company maintains its leadership position in the industry. In addition, factors such as high connected device penetration, and a highly developed digital ecosystem supported by large media companies and ICT service providers, should further propel the company's performance in the coming months.

Here is what could shape IPG's performance in the near term:

Positive Developments

This month, IPG Mediabrands agreed with NewsGuard to expand its existing partnership to take responsible digital programmatic advertising to a pre-planning capacity and co-create the first-ever tool to evaluate and rate individual broadcast and cable news programs and networks. The new rankings will cover 117 shows across 27 networks and debut as an exclusive product for Mediabrands clients in spring 2022.

Also, this month, IPG's agencies received seven of the eight Creative Excellence Awards and five of the nine Media Excellence Awards at the inaugural annual Campaign U.S. BIG Awards, establishing its position as an industry leader in creativity, media innovation, and client sectors.

Strong Financials and Profitability

During the third quarter, ended September 30, 2021, IPG's total revenue increased 19.6% year-over-year to $2.54 billion. Its operating income grew 41.4% from its  year-ago value to $351.5 million. The company's net income came in at $239.9 million, while its EPS amounted to $0.60.

IPG's 16.5% trailing-12-months EBIT margin is 52.6% higher than the 10.8% industry average. Also, its ROC, net income margin, and ROA are 140%, 39.5%, and 32.5% higher than the respective industry averages. Furthermore, its $213 billion in cash from operations is 427.1% higher than the $404.22 million industry average .

Discounted Valuation

In terms of non-GAAP forward P/E, the stock is currently trading at 14.08x, which is 22% lower than the 18.05x industry average. Also, its 1.58x forward Price/Sales multiple is 9.8% lower than the 1.75x industry average. And IPG's 1.86x forward EV/Sales is 23.6% lower than the 2.43x industry average.

The stock's 11.04x forward EV/EBIT multiple is 32.4% lower than the 16.33x industry average.

Impressive Growth Prospects

The Street expects IPG's revenues and EPS to rise 12.4% and 49.7%, respectively,  year-over-year to $9.07 billion and $2.59 in fiscal 2021. In addition, IPG's EPS is expected to rise at a 17.4% CAGR over the next five years. Furthermore, the company has an impressive earnings surprise history; it topped the Street’s EPS estimates in all the trailing four quarters.

POWR Ratings Reflect Solid Prospects

IPG has an overall B grade, which equates to a Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. IPG has a B grade for Growth and Quality. The company's solid growth attributes justify the Growth grade. In addition, IPG's solid earnings and profitability are consistent with the Quality grade.

Of the 16 stocks in the Advertising industry, IPG is ranked #1.

Beyond what I have stated above, we have graded IPG for Stability, Sentiment, Value, and Momentum. Get all IPG ratings here.

Bottom Line

IPG is a leading marketing solutions provider with an impressive brand portfolio and an international market presence. Considering its solid fundamentals and impressive growth outlook, we believe the stock could be an excellent addition to one’s portfolio at the current price level.

How Does The Interpublic Group of Companies Inc. (IPG) Stack Up Against its Peers?

IPG has an overall grade of B in our proprietary rating system. This rating is superior to its peers in the Advertising industry – WPP plc American Depositary Shares (WPP), Omnicom Group Inc. (OMC), and Publicis Groupe (PUBGY), which have a C (Neutral) rating.

IPG shares were trading at $36.75 per share on Friday morning, up $0.27 (+0.74%). Year-to-date, IPG has gained 61.62%, versus a 26.80% rise in the benchmark S&P 500 index during the same period.

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.

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