By Davit Kirakosyan
BofA Securities upgraded Interpublic Group (NYSE:IPG) to Buy from Neutral and raised its price target to $40.00 from $38.00, noting the company is well suited for challenging times. Shares gained more than 3% intra-day today.
Over the past 12 months, the company’s shares have lagged behind peers by 500 basis points due to a slowdown in their growth premium and margin expansion. Historically, Interpublic Group has been the agency holding company with the fastest and most reliable growth (14% EPS CAGR from 2017-22 versus peers' -4/7%).
Following a recent meeting with management, BofA said they are confident that (1) the current headwinds specific to the company are temporary, (2) weakness in the Tech/Telecom sector will be compensated for by the strength of the Healthcare sector, and (3) costs are effectively controlled.
According to BofA, the agency holding companies' backdrop has improved, which will enable them to achieve 3-4% organic growth again. Despite the growing risks faced by the advertising industry, the firm believes the group should remain resilient due to the ongoing secular growth in data, technology, e-commerce, and audience fragmentation/complexity opens up opportunities for agencies to restore their value to clients.
“IPG specifically looks well-placed thanks to its integrated and agile model (“Open Architecture”) and ownership of Acxiom in data (~7% of group revenue),” said the firm.