The Omnipresent Omnicom: Strong and Getting Stronger

Omnicon Group, Inc. (OMC) can create advertising that is omnipresent. The company ranks as the world's #1 corporate media services conglomerate, with advertising, marketing, and public relations operations serving some 5,000 clients in more than 100 countries. It serves global advertising clients through its agency networks BBDO Worldwide, DDB Worldwide, and TBWA Worldwide, while such firms as GSD&M, Merkley Partners, and Zimmerman Advertising provide services for regional and national clients. More than 160 other firms in its Diversified Agency Services division, including Fleishman-Hillard, Integer, and Rapp Collins, provide public relations and other marketing services.

We're talking big here. Revenues should be $11.35 billion this year, up from $10.5 last year. Next year expect around $12.04 billion. That's a lot of ad space and PR. Analysts look for revenues to grow by 10% a year, on average, over the next 5 years. Earnings are projected to grow at 12% in the same time frame. Last year, earnings per share [EPS] were $4.36. Expect $5.00 this year and $5.60 next.

The most recent quarter [ended in September] EPS were $1.04, 3 cents ahead of analysts' consensus opinion. The previous quarter the company beat estimates by 4 cents. The one before that by 3 cents. This company is growing the bottom line faster than analysts are anticipating.

That's because China and India companies are increasing their advertising. OMC is also increasing its market share in England and Europe. And the company is further benefiting from stronger demand in the U.S. where revenues increased by 8% in the last year. Finally, acquisitions added another boost to revenues, accounting for 18% of the 10% of increased sales.

OMC is one way to invest in a growing economy. If you believe the economy is ready to expand, then OMC will benefit from increased advertising, marketing and PR that companies budget when times are good. Corporate profits over the last year suggest companies will have ample funds to increase their ad and marketing budgets.

Investors have noticed the improvements at OMC and the positive outlook. The stock has gone up by 15% in the last three months. Valuations are getting higher with the p/e ([price to earnings] ratio at 21. [The average annual p/e ratio has been within a wide range of 15.8 to 37.4 in the last 10 years.] Of course, with a strong return on equity [20% last year, anticipated 23% this year and 24% next year], investors are willing to pay up for the stock. There's also a dividend of $1.00, giving investors a tangible, spendable return on their investment.

Omnicom is in good shape, financially and competitively. While the stock has moved ahead strongly in only 3 months, there's good reason for it: earnings are improving with anticipation of better times ahead. The one major concern: will the economy keep moving ahead, allowing companies to spend more on advertising and marketing? If the Fed decides to raise interest rates and slow whatever recovery we're now seeing, the slowdown will affect most companies, including OMC. If, however, the economy picks up steam, look for OMC's earnings to once again be better than expected.

OMC 1-yr chart