A prudent investment decision involves buying stocks that have solid prospects and selling those that carry risks. At times, it is rational to hold certain stocks that have enough potential but are weighed down by tough market conditions.
Here we focus on The Interpublic Group of Companies, Inc. IPG, which has an expected earnings growth rate of 24.1% for 2018. The company’s long-term earnings growth rate is projected at 7.4%.
So far this year, shares of the company have gained 17.6% against the industry’s decline of 4.2%. We believe the stock has the potential to exceed expectations moving ahead. The reasons behind our optimism include Interpublic’s diversified business model and geographic reach, strong cash generation ability and consistent shareholder-friendly initiatives.
Let’s discuss them in detail.
Distinctive Competitive Advantage
Interpublic’s digital capabilities, diversified business model and geographic reach offer a distinctive competitive advantage over its peers. In the coming quarters, it is expected to achieve targeted levels based on diversification across emerging regions and collaboration/integration across agencies through technological improvement. The company also continues to look for strategic investments/acquisitions to expand in high-growth regions and key world markets.
Flexibility to Pursue Growth
Interpublic has a healthy balance sheet, courtesy of management’s strategic moves. In 2017, the company generated cash, cash equivalents and marketable securities of $791 million. It recorded $881.8 million of cash from operating activities in 2017 compared with $512.8 million in 2016 and $688.5 million in 2015.
This significant amount of cash provides Interpublic with the flexibility to act on strategies for growth. Moreover, the company’s strong cash flow generating abilities make it a value buy for investors.
Shareholder-Friendly Initiatives
Interpublic’s consistent efforts to return value to shareholders in the form of dividends and share repurchases are encouraging. The company paid dividends of $280.3 million, $238.4 million and $195.5 million in 2017, 2016 and 2015, respectively. Also, it repurchased shares worth $300.1 million, $303.3 million and $285.2 million in 2017, 2016 and 2015 each.
On Feb 14, 2018, Interpublic’s board of directors announced a 17% dividend hike, raising the quarterly cash dividend to 21 cents per share. The company approved another $300 million share repurchase plan, while using $55 million to repurchase 2.4 million shares in the first quarter of 2018.
Such moves reflect the company’s commitment to create value for shareholders and also underline its confidence in business. Apart from instilling investors’ confidence in the stock, these shareholder-friendly initiatives are expected to drive earnings per share.
Zacks Rank & Key Picks
Interpublic carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Business Services sector include The Dun & Bradstreet Corp. DNB, BG Staffing, Inc. BGSF and FLEETCOR Technologies, Inc. FLT. While Dun & Bradstreet sports a Zacks Rank #1 (Strong Buy), BG Staffing and FLEETCOR carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The long-term expected earnings per share (three to five years) growth rate for BG Staffing, Dun & Bradstreet and FLEETCOR Technologies is 20%, 6% and 16.5%, respectively.
(We are reissuing this article to correct a mistake. The original article, issued on Jun 28, 2018, should no longer be relied upon.)
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