Can Omnicom (OMC) Keep the Earnings Streak Alive in Q4?

Advertising services provider Omnicom Group Inc. OMC is scheduled to report fourth-quarter 2015 results before the opening bell on Feb 9.

Omnicom's earnings track record has been remarkable over the past few quarters, consistently beating earnings estimates in the trailing four quarters. In the last reported quarter, it registered a positive earnings surprise of 2.11%, and boasts an average earnings surprise of 2.24% over the last four quarters.

Key Factors in the Past Quarter

Omnicom faces the risk of strengthening U.S. dollar, which is likely to adversely impact its financial results by affecting its revenues. As the company establishes its operations internationally, it exposes itself considerably to risks from foreign exchange barriers and uncertainty from monetary devaluation. Macroeconomic slowdown and geopolitical issues also remain concerns as they have a direct impact on client spending. Omnicom currently faces numerous such headwinds, like economic fragility of the Eurozone, political instability in the Middle East and a striking slowdown in the Chinese economy. Also, these macroeconomic risks continue to drive other companies to be cautious with regard to advertising and marketing outlay, thereby squeezing advertising budgets. These developments might prove to be a strain on Omnicom in the upcoming quarterly results.

In addition, Omnicom faces concentration risk as it relies on a few big clients for its businesses. This often reduces its operating margins and affects its profitability. Omnicom belongs to the dynamic communications industry, which is highly competitive in nature. Agencies and media services compete with other agencies and creative or media services providers to maintain existing client relationships and win new clients.  Also, keeping in view the service-oriented nature of the whole industry, it becomes imperative for the company to increase the count of talented employees as well as retain the existing ones. These are likely to affect its profitability in the impending quarter.

However, Omnicom is taking definite measures to streamline costs and boost earnings, and is also moving into new service areas to keep up with dynamic industry trends. It is building upon its digital and analytical capabilities by investing in agencies and partnering with innovative technology companies in key markets. In addition, Omnicom's operations are diversified across technology platforms, thus lowering its dependence on any one product in these dynamic technological markets and reducing the volatility of its earnings.

Earnings Whispers

Our proven model does not conclusively show that Omnicom is likely to beat earnings this quarter as it lacks the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently at -0.75%.

Zacks Rank: Omnicom's Zacks Rank #3 when combined with negative ESP makes an earnings beat prediction uncertain. In addition, the Sell-rated stocks (#4 and #5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

American Capital, Ltd. ACAS, earnings ESP of +12.50% and a Zacks Rank #2.

ABM Industries Incorporated ABM, earnings ESP of +38.46% and a Zacks Rank #3.

Frontline Ltd. FRO, earnings ESP of +25.00% and a Zacks Rank #2.

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