Omnicom (OMC) Well Poised for Healthy Inorganic Growth

On Aug 17, Zacks Investment Research updated the research report on global marketing and corporate communications firm Omnicom Group Inc. OMC.

Despite a challenging macroeconomic environment, Omnicom reported relatively healthy second-quarter 2016 results. Net income for the reported quarter was $324.1 million or $1.36 per share, up from $310.0 million or $1.26 in the year-ago quarter. Reported earnings per share beat the Zacks Consensus Estimate by $0.02. Revenues improved 2.1% year over year to $3,884.9 million, primarily driven by a 3.4% rise in organic growth.

Omnicom is currently concentrating on strengthening its business and expanding its client base globally through acquisition of complementary companies. During the second quarter of 2016, the company acquired Rabin Martin, a global health strategy consulting firm. Rabin Martin's high-profile client base will augment Omnicom Public Relation's already strong healthcare offerings. Omnicom also acquired BioPharm Communications, a leading communications agency that serves 17 out of 25 major pharmaceutical companies across the globe. The acquisition will enable Omnicom to expand its leadership position in a highly competitive data-driven healthcare market. We expect the company to witness higher revenues in the imminent future on the back of such acquisitions.

Omnicom is also witnessing a healthy performance in developed markets like the U.S. and developing markets like Asia. The measures undertaken by the company to reduce costs have helped it to boost earnings. The company is expanding its global footprint and is moving into new service areas. It is also building upon its digital and analytical capabilities by investing in agencies and partnering with innovative technology companies in key markets. Omnicom's operations are diversified across technology platforms, thus lowering its dependence on any one product in these dynamic technological markets. All these initiatives augur well for the long-term growth and stability of the company.

However, a significant portion of Omnicom's revenues comes from Europe. In the present scenario, when the economy in the region is highly unpredictable particularly after the Brexit referendum, it becomes difficult for the company to increase revenues and reduce costs. In addition, the company is susceptible to market risks of losing contracts related to media purchases and production costs, thereby affecting its bottom line.

Nevertheless, we remain impressed with the focused growth initiatives of this Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the industry include The Hackett Group, Inc. HCKT, CRA International Inc. CRAI and CBIZ, Inc. CBZ, each carrying a Zacks Rank #2 (Buy).

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