We are maintaining a Neutral recommendation on Omnicom Group Inc. (OMC).
We are optimistic on the company’s strong operational performance, primarily driven by the positive outcomes in the developing markets across Asia and Latin America. Moreover, performances in advertising, media and sports businesses in the UK and US market look stable despite facing several obstacles in the European market.
Omnicom continues to focus on strengthening its potential and expanding client base globally through acquisition of complementary companies. Such acquisition activities, especially in Asia, are expected to work as a key factor to augment revenue growth. Additionally, the company’s balance sheet appears sound enough to stimulate further acquisitions and investments.
We believe the increasing demand for media services, speedy growth of technologies along with massive proliferation of channels would boost the company’s future sales. Omnicom’s cost-effective marketing services in the field of advertising and marketing hold future prospects for the company’s margin management
However, the current cost inflation is continuously burdening the price structure of the company and affecting its margins. Moreover, in order to confront the fierce competition, the company has to spend massively on its service offerings to attract new customers while maintaining existing associations. This raises the company’s cost of production, thereby affecting its pricing structures.
Moreover, slower-than-expected GDP growth in the US as well as monetary devaluation across global enterprises may act as an impediment to the company’s profitability.
Omnicom is one of the largest advertising; marketing and corporate communications companies in the world, and directly competes with The Interpublic Group of Companies Inc. (IPG), Publicis Groupe SA (PUBGY) and WPP pl. (WPPGY).
The company holds a Zacks #3 Rank, which translates into a short-term (1-3 months) Hold rating.
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