We maintain our Neutral recommendation on shares of Omnicom Group Inc. (OMC), one of the largest providers of advertising, marketing and corporate communication services in the world. This reflects that the stock will perform in line with the broader market.
Omnicom Group continues to acquire complementary companies with strong entrepreneurial management teams to expand its client base. Moreover, management remains committed to further expanding its business and relationships in Asia, where operating conditions remain extremely favorable. This should improve the long-term profitability of the company.
With the proliferation of media channels, including the rapid development of interactive technologies, the industry has become even more competitive and dynamic. As media channels need to address more widespread mass audiences, it has become increasingly difficult for marketers to reach target audiences in a cost-effective way. As a result, companies turn to marketing service providers, such as Omnicom, for a customized mix of advertising and marketing communications services designed for optimal use of their marketing expenditures.
However, the intense competitive advertising environment and pricing pressures continue to negatively impact operating margins. In addition, a weak economy can dramatically lower the level of advertising spends.
Given its international presence, Omnicom often faces unfavorable foreign currency movements, impacting its top line growth. Unfavorable currency translation negatively impacted revenue growth by 3.4% during 2009.
The company continues to generate new business wins, despite the current challenging economic environment. Moreover, in reaction to the current economic challenges, management has aligned the company’s cost structure by right-sizing headcount and reducing compensation pools.
Read the full analyst report on “OMC”
Zacks Investment Research
