The rise in service activities, along with increased digital marketing services and the success of the work-from-home trend, is enabling the Zacks Advertising and Marketing industry to counter the prevailing revenue softness.
Customer-centric approaches to business, digital strategies and technology investments are helping Omnicom Group Inc. (OMC – Free Report) , National CineMedia, Inc. (NCMI – Free Report) and Harte Hanks, Inc. (HHS – Free Report) to sail through the current testing times.
About the Industry
The Zacks Advertising and Marketing industry comprises companies that offer an extensive range of services, including advertising, branding, content marketing, digital/direct marketing, digital transformation, financial/corporate business-to-business advertising, graphic arts/digital imaging, healthcare marketing and communications and in-store design services. Prominent players from the industry include Interpublic and Omnicom. The pandemic has changed the way industry players have conducted business and delivered services so far. Currently, the industry’s key focus is on channelizing money and efforts toward media formats and devices. To position themselves suitably in the post-pandemic era, service providers are increasing their efforts toward formulating strategic initiatives and identifying sources of demand.
What’s Shaping the Future of the Industry?
Economic Recovery: The sector is a major beneficiary of the broader economy and service activities. According to the “advance” estimate released by the Bureau of Economic Analysis, GDP grew at an annual rate of 4.9% in the third quarter compared with 2.1% growth in the second quarter. Economic activities in the non-manufacturing sector are in good shape. The Services PMI measured by the Institute for Supply Management has stayed above the 50% mark for the past ten months, indicating continued expansion.
Reviving Demand: The industry is mature, with demand for services remaining stable over time. Revenues, income and cash flows are anticipated to gradually reach the pre-pandemic levels, aiding most industry players to pay out stable dividends.
Digital Marketing Gathering Steam: Digital media consumption has shot up, with consumers spending more time on various media platforms and video-streaming services. Thus, agencies offering digital marketing services stand to gain, as these firms are better positioned to address the rapid change in customer preference.
Zacks Industry Rank Indicates Dull Near-Term Prospects
The Zacks Advertising and Marketing industry, housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #206. This rank places it in the bottom 16% of more than 240 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates underperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and current valuation:
Industry’s Price Performance
Over the past year, the Zacks Advertising and Marketing industry has fallen while the S&P 500 composite and the broader sector witnessed growth. The industry has declined 4.8% against the S&P 500 composite’s growth of 14.6%. The broader sector has gained 9.1 in the said time frame.
One-Year Price Performance
Industry’s Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing advertising and marketing stocks, the industry is currently trading at 9.03X compared with the S&P 500’s 18.51X and the sector’s 22.78X.
Over the past five years, the industry has traded as high as 16.98X and as low as 7.74X, with the median being 11.24X, as the charts below show.
Price to Forward 12-Month P/E Ratio
3 Advertising Stocks to Consider
Here, we have presented three stocks that are well-positioned for near-term growth:
National CineMedia: The company operates a cinema advertising network in North America. It has recently completed its financial restructuring and is witnessing benefits in the form of increased management fee reimbursement and decreased operating costs.
The Zacks Consensus Estimate for the company’s 2023 bottom line remained unchanged at a loss of $4.8 over the past 60 days. It currently carries a Zacks Rank #2 (Buy).
Price and Consensus: NCMI
Omnicom: The company is a provider of advertising, marketing and corporate communications services. Consistency and diversity of operations and focus on delivering consumer-centric strategic business solutions ensure the long-term profitability for Omnicom. It has divested underperforming and non-core businesses and reorganized to meet clients’ ever-transforming needs.
The Zacks Consensus Estimate for the company’s 2023 EPS has been revised slightly upward over the past 30 days. It currently carries a Zacks Rank #3 (Hold).
Price and Consensus: OMC
Harte Hank: The global marketing services company currently carries a Zacks Rank #3. HHS is currently benefiting from strong customer relationships and stable revenues. The company has a strong pipeline in the Customer Care segment, including healthcare, pharma, consumer products, government and technology.
The Zacks Consensus Estimate for the company’s 2023 EPS has remained unchanged at 40 cents over the past 60 days.
Price and Consensus: HHS