No Ads Needed: Interpublic (IPG) Stock Looks Attractive - Barron's
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Interpublic Group (NYSE: IPG) is looking strong today, following a bullish article over the weekend in Barron's.
The holding company of 84 ad agencies and media outfits is well-diversified in several industries, and looks poised to gain as ad spending dollars ramp back up.
Further, Barron's notes that the company looks completely different from its 2005 restructuring: margins are up, cash flow is better, and the balance sheet is looking trim.
One Gabelli analyst believes that investors can win two ways with Interpublic stock: cost-cutting leading to boosted margins and increased cash flow.
Current margins are rather trim, gaining $271.2 million of net income on revs of $6.5 billion in 2010. The revenue number puts Interpublic as the fourth largest ad holding company globally. It's largest holding, McCann Erickson, contributes about 33 percent to Interpublic's top line, with the next two of its largest holdings each accounting for about 15 percent of revs.
The 2005 restructuring was led by Michael Roth, who joined in 2002 as a director, and took the helm in 2005. Roth is an accountant and lawyer by training, and his task was to better integrate Interpublic's shopping spree which netted the company about 185 different companies from 1999 to 2001.
Needless to say, initial integration attempts of all 185 entities ended up a mess.
But Roth straightened it out thorough further mergers of several companies as well as sales and closures of others.
Headcount also fell about 25 percent from 2002 to 41,000.
With a balanced ecosystem now running, Interpublic was ready to make some serious gains...until the recession hit in 2009, slamming the door on most advertising budgets, and sending Interpublic's shares to a low of $3.
Roth recently stated that he hasn't seen a pullback in ad spending, amid concerns in Europe, and expects the company to achieve organic revenue growth of 4 to 5 percent and operating margins of 9.5 to 10 percent. Operating margins were 8.4 percent in 2010. Interpublic may also be able to get back to normalized margins of 13 percent by 2014, standard for the industry.
The targets don't include a big European recovery either. Currently, Interpublic draws about 57 percent from revs from the U.S., 20 percent from Europe, and 10 percent in Asia.
EBITDA was $737 million last year, and could pop to $869 million in 2011.
Earlier in the year, Interpublic showed confidence with the reinstatement of its dividend, currently yielding 2 percent, and also announcing a $300 million buyback plan. Additionally, Moody's recently dubbed Interpublic's debt as investment grade. Should S&P's follow suit, Interpublic may be able to tap the debt market soon. The company has had to rely on internally generated cash to fund operations since 2003.
Some areas still need work for Interpublic: McCann could use a revamp, a Microsoft (Nasdaq: MSFT) account was recently lost, and S.C. Johnson put its account up for auction.
Currently, Interpublic is trading just over 1 percent better this afternoon.
The holding company of 84 ad agencies and media outfits is well-diversified in several industries, and looks poised to gain as ad spending dollars ramp back up.
Further, Barron's notes that the company looks completely different from its 2005 restructuring: margins are up, cash flow is better, and the balance sheet is looking trim.
One Gabelli analyst believes that investors can win two ways with Interpublic stock: cost-cutting leading to boosted margins and increased cash flow.
Current margins are rather trim, gaining $271.2 million of net income on revs of $6.5 billion in 2010. The revenue number puts Interpublic as the fourth largest ad holding company globally. It's largest holding, McCann Erickson, contributes about 33 percent to Interpublic's top line, with the next two of its largest holdings each accounting for about 15 percent of revs.
The 2005 restructuring was led by Michael Roth, who joined in 2002 as a director, and took the helm in 2005. Roth is an accountant and lawyer by training, and his task was to better integrate Interpublic's shopping spree which netted the company about 185 different companies from 1999 to 2001.
Needless to say, initial integration attempts of all 185 entities ended up a mess.
But Roth straightened it out thorough further mergers of several companies as well as sales and closures of others.
Headcount also fell about 25 percent from 2002 to 41,000.
With a balanced ecosystem now running, Interpublic was ready to make some serious gains...until the recession hit in 2009, slamming the door on most advertising budgets, and sending Interpublic's shares to a low of $3.
Roth recently stated that he hasn't seen a pullback in ad spending, amid concerns in Europe, and expects the company to achieve organic revenue growth of 4 to 5 percent and operating margins of 9.5 to 10 percent. Operating margins were 8.4 percent in 2010. Interpublic may also be able to get back to normalized margins of 13 percent by 2014, standard for the industry.
The targets don't include a big European recovery either. Currently, Interpublic draws about 57 percent from revs from the U.S., 20 percent from Europe, and 10 percent in Asia.
EBITDA was $737 million last year, and could pop to $869 million in 2011.
Earlier in the year, Interpublic showed confidence with the reinstatement of its dividend, currently yielding 2 percent, and also announcing a $300 million buyback plan. Additionally, Moody's recently dubbed Interpublic's debt as investment grade. Should S&P's follow suit, Interpublic may be able to tap the debt market soon. The company has had to rely on internally generated cash to fund operations since 2003.
Some areas still need work for Interpublic: McCann could use a revamp, a Microsoft (Nasdaq: MSFT) account was recently lost, and S.C. Johnson put its account up for auction.
Currently, Interpublic is trading just over 1 percent better this afternoon.
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