Stagwell's Advocacy Segment Set To Boost Total Revenue In Election Year, Says Analyst

Needham analyst Laura Martin reiterated a Buy rating on the shares of Stagwell Inc. STGW, raising the price target to $10 from $8.

The analyst raised the price target because Stagwell will see lower risks of third parties selling shares, which used to limit STGW's share price appreciation earlier.

Structurally, the analyst applauds STGW's customized engineering solutions, a key upside revenue driver and a core competitive advantage.

The analyst also remains upbeat about the company's advocacy business segment, which adds up to 10% to STGW's total revenue. The segment will gain in FY24 as it is an election year.

Also Read: Stagwell's Strong Q4 Performance Prompts Analyst to Highlight 8 Deals, Reduced Cash Payouts, and Additional Stock Buyback for Buy Rating

The analyst believes STGW will now primarily buy up-sell products to increase the LTV of its existing clients. 

This apart, Martin expects returns on invested capital to be very high for these add-on products.

The analyst notes that 20% of STGW's annual revenue is recurring maintenance fees, plus an additional 60%-70% of rev comes from contractual multi-year engagements, which adds visibility and lowers risks.

For FY23, the analyst sees net revenue of $2.4 billion (up 8% y/y), Adj EBITDA of $450 million (flat y/y), and EPS of $0.45 (up 163% y/y).

For FY24, the analyst expects net revenue of $2.76 billion (up 15% y/y), Adj EBITDA of $580 million (up 25% y/y), and EPS of $0.69 (up 55% y/y).

Price Action: STGW shares are trading higher by 1.21% to $7.93 on the last check Tuesday.