Market Overview

Analyst: Take Advantage Of Omnicom's 'Chunky' Q4 Report

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Omnicom Group Inc. (NYSE: OMC) reported fourth quarter results, which sent shares lower by around 7 percent Thursday. Despite a revenue miss and a drop in net income, at least one analyst turned bullish on the stock.

The Analyst

BMO Capital Markets' Daniel Salmon upgraded Omnicom Group's stock from Market Perform to Outperform with a price target boosted from $80 to $90.

The Thesis

Omnicom's earnings was "chunky" due to soft project spending, but beyond the headline numbers the stock is now attractive for three reasons, Salmon said in a note.

  • Omnicom's balance sheet is strong with a net leverage of 0.5 times and $3.8 billion in cash, the analyst said. The net leverage is at its lowest levels dating back to 2010 and positions the company to buy back its stock at the current depressed valuation. Moreover, the company can pursue acquisitions to build its business which is still a top priority.
  • Among the approximately $15 billion worth of accounts that are in view, the company is at risk of defending only $2 billion. Management's guidance likely assumes it loses some business but on the other hand its recently formed third media agency is positioned to pick up businesses across multiple verticals.
  • Omnicom's 2009 "widespread clean-up" of its portfolio generated "sustained strength" over the years and investors could expect a similar outcome with its CRM reorganization.

Bottom line, the stock's 7 percent decline and 3.1 percent dividend yield is attractive enough for Salmon to recommend buying the stock for the first time since 2015.

Price Action

Shares of Omnicom Group were trading higher by 1.5 percent Friday at $78.41.

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Latest Ratings for OMC

DateFirmActionFromTo
Apr 2019BMO CapitalMaintainsOutperformOutperform
Apr 2019BarclaysUpgradesUnderweightEqual-Weight
Feb 2019CitigroupMaintainsNeutralNeutral

View More Analyst Ratings for OMC
View the Latest Analyst Ratings

Posted-In: BMO Capital Markets Daniel SalmonAnalyst Color Upgrades Price Target Analyst Ratings

 

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