Wells Fargo Downgrades Interpublic Group (IPG) to Equal Weight, 'the 2Q print makes us more cautious on IPG'

Wells Fargo analyst Steven Cahall downgraded Interpublic Group (NYSE: IPG) from Overweight to Equal Weight with a price target of $33.00 (from $43.00).

The analyst comments "We're lowering our estimates and valuation multiple following IPG's second consecutive quarter of negative organic growth. The 2Q23 result, a -190bps sequential deceleration in organic growth, was dragged by what appears to be incremental client weakness in the Tech/Telco vertical and continued challenges at the IPG's digital specialist agencies (-350bps headwind). IPG reduced its FY23 organic growth guidance to +1-2% (from +2.4%), and we think management was previously penciling in a greater measure of recovery within Tech/Telco and at its specialty agencies. This appears less likely, as we think project delays/deferrals have begun to pick up. While the back-half should benefit from a string of new business wins, the 2Q print makes us more cautious on IPG sustaining nominal GDP + organic growth rates further out. On the call, management noted that six of its eight client sectors grew in the first half. In the near/medium-term we find it less likely that the two weak categories materially rebound, and more likely that weakness spills over into the remaining six, given the current economic outlook. We trim Q3/Q4 '23 organic growth from +4.9%/+5.6% to +4.0%/+3.5%. Our 2023/24 organic growth goes from +3.0%/+3.2% to +1.5%/+2.0%. Our margin estimates are unchanged and '23/'24 EPS goes from $2.96/$3.15 to $3.07/$3.02. Just prior to the negative 2Q23 print, IPG had traded on ~13x next year's earnings. This was up from its average of ~12x in 2022 - we think due to investor optimism of a sustained period of above average organic growth. We move our IPG P/E multiple to 11x (prior 14x) on our lowered growth outlook. 11x our CY24E EPS of $3.02 puts our new price target at $33/sh ($43/sh prior). This results in an Equal Weight rating vs Overweight prior."

For an analyst ratings summary and ratings history on Interpublic Group click here. For more ratings news on Interpublic Group click here.

Shares of Interpublic Group closed at $32.87 yesterday.

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