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Omnicom (OMC) Remains Well Poised on Balanced Growth Model

On Apr 10, we issued an updated research report on global marketing and corporate communications firm, Omnicom Group Inc. OMC.

Omnicom is one of the largest advertising, marketing and corporate communications companies in the world. Its agencies operate in all the major markets across the globe and provide an extensive range of services, which are grouped into four fundamental disciplines: Traditional Media Advertising, Customer Relationship Management, Public Relations and Specialty Communications.

The company outperformed the Zacks categorized Advertising and Marketing industry in the last six months with an average growth of 4.6% compared with a paltry 0.2% gain for the latter. In order to spur growth, Omnicom started using open-source technique to access the current information in the market. The increasing demand for media services, speedy growth of technologies and massive proliferation of channels are likely to translate into incremental revenues in the future.

The company is concentrating on strengthening its business and expanding its client base globally through the acquisition of complementary companies. Omnicom maintains a balanced growth model through a combination of well-focused internal development initiatives and strategic acquisitions. We expect the company to witness higher revenues in the imminent future on the back of prudent acquisitions and organic growth.

Omnicom is also witnessing a healthy performance in developed markets like the U.S. and developing markets like Asia. The measures undertaken by the company to reduce costs have helped it boost earnings. It is expanding its global footprint and is moving into new service areas. It is building upon its digital and analytical capabilities by investing in agencies and partnering with innovative technology companies in key markets. Omnicom’s operations are diversified across technology platforms, thus lowering its dependence on any one product in these dynamic technological markets.

However, a significant portion of Omnicom’s revenues comes from Europe. At present, when the economy in the region is highly unpredictable, particularly after the Brexit referendum, it becomes difficult for the company to increase revenues and reduce costs. Brexit could further result in higher tariff and non-tariff barriers to trade between the U.K. and the European Union, lowering the productivity of the company. In addition, it is susceptible to market risks of losing contracts related to media purchases and production costs, which thereby affects its bottom line and undermines its organic growth to some extent.

Nevertheless, we expect the company to witness higher revenues in the future and remain impressed by the focused growth initiatives of this stock.

Omnicom currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include CBIZ, Inc. CBZ, CRA International Inc. CRAI and Exponent Inc. EXPO, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CBIZ is currently trading at a forward P/E of 17.35x.  It topped estimates twice in the trailing four quarters with an average positive earnings surprise of 21.45%.

CRA International has a long-term earnings growth expectation of 8%. It surpassed estimates thrice in the trailing four quarters with an average positive earnings surprise of16.02%.

Exponent has a long-term earnings growth expectation of 12%. It topped estimates thrice in the trailing four quarters with an average positive earnings surprise of 9.35%.

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Omnicom Group Inc. (OMC): Free Stock Analysis Report
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