PUBGY - Interpublic Group rises amid upgrade to Buy at BofA

2023-03-30 12:28:45 ET

Ad giant Interpublic Group ( NYSE: IPG ) was 3.1% higher at midday Thursday following an upgrade to Buy at BofA, citing some confidence after meeting with management.

The growth premium and margin expansion story "stalled" and Interpublic Group underperformed peers by some 500 basis points over the past 12 months, analyst Adrien de Saint Hilaire said. That, from a company that has historically been the "fastest growing ... and most reliable agency holding company."

A visit with management, though, left the analysts "confident that (1) Current IPG-specific headwinds are transient (2) Weakness in Tech/Telecom should be more than offset by strength in Healthcare (3) Costs are well under control."

The backdrop for all the holding companies -- WPP , Omnicom ( OMC ), Publicis Groupe ( OTCQX:PUBGY ) and IPG -- has improved overall, allowing for them to return to 3-4% organic growth, Saint Hilaire noted. The group should be resilient amid some secular growth factors, and IPG "specifically looks well placed thanks to its integrated and agile model ('Open Architecture') and ownership of Acxiom in data (~7% of group revenue)."

Meanwhile, IPG's most cautious revenue outlook is tied to issues that should cycle out in the second half, including recent account losses and ongoing repositioning at its independent marketing agencies R/GA and Huge.

And like its peers, IPG's cost model is flexible -- 80% of its costs are tied to people -- and it's been hiring "prudently" with headcount 8% above 2019 levels.

Saint Hilaire raised expected earnings per share: to $2.93 from $2.72 for 2023, to $3.20 from $2.93 for 2024, and to $3.45 from $3.12 for 2025. And BofA boosted its price target to $40, implying another 10% upside.

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