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 pandemic-related challenges.
Customer-centric approaches to business, digital strategies and technology investments are helping Publicis Groupe S.A. (PUBGY – Free Report) , Omnicom Group Inc. (OMC – Free Report) and The Interpublic Group of Companies, Inc. (IPG – 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 will continue to change 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 industry is a beneficiary of service activities that are currently in good shape. The Services PMI measured by the Institute for Supply Management has stayed above 50% after contracting in December2022, following 30 consecutive months of expansion. It clocked 0.7% growth from March 2023 to April 2023, touching 51.9%.
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 healthy levels, aiding most industry players in paying out stable dividends.
Digital Marketing Gathering Steam: Amid the pandemic, 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 Bright Prospects
The Zacks Advertising and Marketing industry, housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #100. This rank places it in the top 40% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term growth prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
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 and the broader sector witnessed a decline, while the S&P 500 composite rose. The industry has depreciated 13.5% against the S&P 500 composite’s rise of 2.9%. The broader sector has declined 6.9% 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 9.22 compared with the S&P 500’s 18.35 and the sector’s 21.99.
Over the past five years, the industry has traded as high as 16.65X, as low as 7.52X, and at the median of 11.82X, as the charts below show.
Price to Forward 12-Month P/E Ratio
3 Advertising Stocks to Consider
We present three stocks that are well-positioned for near-term growth:
Interpublic: An increasingly diverse workforce gives this global provider of advertising and marketing services a key competitive edge. The company continues to attract, acquire and develop strategic, creative and digital talent from diverse backgrounds with a view to increase organic growth and strengthen its foothold in international markets.
Interpublic continues to invest in technology and internationalize its digital specialist agencies to keep pace with the rapidly evolving media landscape. The company has been enhancing its digital capabilities like search, social, user experience, content creation, analytics and mobile across its portfolio in order to maintain growth in the dynamic sector.The Zacks Consensus Estimate for Interpublic’s 2023 EPS has increased 5.3% in the past 60 days to $2.96. Shares of the company have declined 20.6% in the past year. Interpublic currently flaunts a Zacks Rank #1 (Strong Buy).
Price and Consensus: IPG
Publicis: The company is a provider of marketing, communications and digital business transformation services. It is witnessing strength across regions, especially in the United States and Europe, driven by strong momentum in account wins.
The Zacks Consensus Estimate for the company’s 2023 EPS has moved up 2.2% in the past 60 days. Shares of Publicis have gained 30.6% in the past year. Publicis currently carries a Zacks Rank #2 (Buy).
Price and Consensus: PUBGY
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 3.2% upward in the past 60 days. Omnicom stock has gained 34.3% over the past year.Omnicomcurrently carries Zacks Rank #2.