Since late January, Omnicom Group Inc. (OMC) — the global advertising and marketing giant — has been on a tear. Sure, the whole market has been recovering, but the S&P 500’s 12% rise since Jan. 21 looks shrug-worthy next to OMC stock’s 23% improvement.
As things stand now, the analyst consensus has yet to catch up with this stock’s potential. As of today, Omnicom stock is trading for $83.74, while the median price target is just $80. Yet despite running right through that price target, OMC hardly looks frothy.
Shares are trading for just 16 times forward earnings — a discount to the broader market — and the company’s prospects are impressive.
If you’re looking for a high-quality company with strong momentum, you’re in the right place.
As I’ve mentioned before, ad agencies have long been one of Warren Buffett’s favorite businesses — and Buffett’s approval is the foundation of a bull case in and of itself. For Omnicom especially there is a long track record of consistent growth, plus an impressive balance sheet.
A little more detail: Omnicom is a holding company that provides advertising, marketing and corporate communications services under several different well-known agencies. This offers diversity in a couple ways. Each agency has its own business and culture, while the overall client list is long and varied. No single account brings in more than 2.7% of total revenue.
In fact, Omnicom has 5,000 clients in more than 100 countries. The breakdown: 62% of Omnicom’s total revenue is derived from the Americas, 28% from Europe and 10% from Asia Pacific.
While some companies are one-trick ponies, Omnicom has the kind of diversity most investors strive for in their own portfolios. Sure, there is some downside to that global footprint — especially considering the current situation in China and the strong dollar — but I believe management is being overly cautious with its estimates thanks to such factors.
Meanwhile, even slightly slower growth this year (compared to last) leaves the stock room to climb at least $10 more thanks to the company’s valuation
Perhaps the best part of the Omnicom story, though, is that you don’t even have to rely on organic growth for eventual stock gains. The company has strong free cash flow and plans to put it to work.
In fact, management recently said additional capital will be put into acquisitions this year. That should fuel future growth and is promising considering Omnicom’s return on equity is almost 37%. Meanwhile, Omnicom also shells out a substantial dividend — one that yields 2.4% even after the recent run — and has an appealing share buyback program.
That’s the cherry on top for this established, global ad company.
Add it up, and this ad agency is a great bet considering its consistent expansion, tried-and-true business model and commitment to rewarding shareholders. Get in before OMC shares put on the second act of their impressive run.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
