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Why Hold Strategy is Apt for Interpublic (IPG) Right Now


A prudent investment decision involves buying stocks with solid prospects and selling those that are at risks. At times, it is rational to hold certain stocks possessing enough potential but are weighed on by tough market conditions.

Here we discuss about The Interpublic Group of Companies, Inc. IPG, a stock having rallied 12.3% over the past year against the 10.4% decline of the industry it belongs to. The company also has an expected long-term earnings per share growth rate of 7.7% and an impressive VGM Score of A.

We believe the stock has the potential to exceed expectations moving ahead. The reasons behind our optimism include the company’s benefits from organic as well as inorganic growth.

Let’s discuss the above positives in detail.

Organic Growth to Continue

Interpublic looks strong on the back of higher organic revenue growth. In the second quarter of 2018, organic growth in the United States was 4.6% and 7.2% in the international markets. In the quarter, organic growth resulted in a 5.6% increase in total revenues. It marked an improvement from 3.6% organic growth in first-quarter 2018 and 3.3% organic growth in fourth-quarter 2017. Further, Interpublic raised its full year target for organic net revenue growth. The company now expects growth of 4-4.5% compared with the previous expectation of 2-3%.

Interpublic Group of Companies, Inc. (The) Revenue (TTM)

Acquisitions have been enabling Interpublic to cater to the rapidly changing marketing services as well as media prospects. In recent years, the company acquired agencies across the marketing spectrum, including firms specialized in digital, mobile marketing, social media, healthcare communications and public relations as well as agencies with full-service capabilities.

So far this year, Interpublic completed two acquisitions — Brazil-based digital marketing and technology agency Cappuccino and London-based social creative agency That Lot — through its subsidiary Weber Shandwick. It also inked a deal to purchase the Acxiom Marketing Solutions (“AMS”) business from Arkansas-based database marketing company, Acxiom Corporation.

Consistent Efforts to Return Value

We are impressed by Interpublic’s consistent efforts to return value to shareholders in the form of dividend and share repurchases. In the first half of 2018, Interpublic repurchased 5.0 million worth shares of its common stock at an aggregate cost of $114.5 million and paid $161.2 million of dividend. Earlier, Interpublic disbursed dividends of $280.3 million, $238.4 million and $195.5 million, respectively in 2017, 2016 and 2015. The company repurchased shares amounting to $300.1 million, $303.3 million and $285.2 million in 2017, 2016 and 2015, respectively.

Such moves indicate the company’s commitment to create value for shareholders and underline its confidence in its business. They not only instill investors’ confidence but also positively impact earnings per share.

Zacks Rank & Stocks to Consider

Currently, Interpublic carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Business Services sector are CRA International CRAI, FTI Consulting FCN and NV5 Global NVEE. While CRA International and FTI Consulting sport a Zacks Rank #1 (Strong Buy), NV5 Global carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

CRA International, FTI Consulting and NV5 Global boast an encouraging surprise history, having delivered an average four-quarter beat of 38.6%, 58.3% and 12.7%, respectively.

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