IPG Stock Study (7-23-24)

Posted by Mark on September 9, 2024 at 06:47 | Last modified: July 24, 2024 11:41

I recently did a stock study on Interpublic Group, Inc. (IPG) with a closing price of $29.67.

M* writes:

     > Interpublic Group is among the world’s largest advertising
     > holding companies based on annual revenue. It provides
     > traditional advertising services along with digital and
     > other services such as public relations through various
     > acquisitions. IPG has made these services available in
     > over 100 countries. The company generates about 65% of
     > revenue in the US and 17% in the UK and Europe.

Over the past 10 years, this large-size company has grown sales and EPS at annualized rates of 4.7% and 9.4%, respectively. Lines are mostly up, straight, and parallel except for sales dips in ’20 and ’23 and EPS declines in ’15, ’17, ’20 (large due to COVID), and ’22. EPS R^2 is ~0.50 for 5-year and 10-year time frames.

Over the past decade, PTPM trails peers and is about even with the industry despite increasing from 9.6% (’14) to 12.9% (’23) with a last-5-year mean of 9.8%. ROE also trails peers and is about even with the industry despite increasing from 22.3% (’14) to 29.3% (’23) with a last-5-year mean of 25.0%. Debt-to-Capital is lower than peer and industry averages despite increasing from 45.0% (’14) to 54.2% (’23) with a last-5-year mean of 59.1%.

Quick Ratio is 1.0 and Interest Coverage is 6.8 per M* who rates the company “Exemplary” for Capital Allocation. Value Line grades the company B++ for Financial Strength.

With regard to sales growth:

• YF projects YOY 3.0% and 2.8% for ’24 and ’25, respectively (based on 10 analysts).
• Zacks projects YOY 5.2% and 2.4% for ’24 and ’25, respectively (3 analysts).
• Value Line projects 7.7% annualized growth from ’23-’28.
• CFRA projects 1.1% YOY and 2.4% per year for ’24 and ’23-’25, respectively.
• M* provides 2-year ACE of -5.8% per year along with 2.0% annualized growth through ’28 in its analyst note.

My 1.0% forecast is well below the long-term estimate due to some [much] lower short-term projections.

With regard to EPS growth:

• MarketWatch projects 3.4% YOY and 4.5% per year for ’23-’25 and ’23-’26, respectively (based on 15 analysts).
• Nasdaq.com projects 6.4% YOY and 5.7% per year for ’25 and ’24-’26 (4 / 4 / 3 analysts for ’24 / ’25 / ’26).
• Seeking Alpha projects 4-year annualized growth of 4.3%.
• YF projects YOY 5.0% contraction for ’24 and 5.6% growth for ’25 along with 5-year growth of 6.3%/year (12).
• Zacks projects YOY 6.4% contraction (growth) for ’24 (’25) along with 5-year annualized growth of 3.4% (4).
• Value Line projects annualized growth of 5.7% from ’23-’28.
• CFRA provides ACE of 4.7% YOY contraction and 0.5% growth/year for ’24 and ’23-’25 and a 3-year CAGR of 3.0%.
• M* projects long-term growth of 0.7% per year.

My 1.0% per year forecast is near the bottom of the long-term-estimate range (mean of five: 4.1%). Initial value is 2024 Q1 EPS of $2.81/share (annualized) rather than ’23 EPS of $2.85.

My Forecast High P/E is 14.0. Over the past decade, high P/E decreases from 18.9 (’14) to 14.4 (’23) with a last 5-year mean (excluding 28.3 in COVID-afflicted 2020) of 15.5 and a last-5-year-mean average P/E of 13.2. I am below the 10-year range.

My Forecast Low P/E is 8.0. Over the past decade, low P/E decreases from 14.2 (’14) to 9.5 (’23) with a last 5-year mean of 10.9. I am forecasting below the range.

My Low Stock Price Forecast of $22.50 is default based on initial value given above. This is 24.2% less than the previous close and 17.3% less than the 52-week low.

Over the past decade, Payout Ratio ranges from 33.9% in ’14 to 56.0% in ’19 (excluding 114% in COVID-afflicted 2020) for a last-5-year mean of 48.4%. I am forecasting below the range at 33.0%.

These inputs land IPG in the HOLD zone with a U/D ratio of 1.6. Total Annualized Return (TAR) is 9.2%.

PAR (using Forecast Average—not High—P/E) of 4.8% is less than I seek for a large-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Aside from my own, however, only one other study has been done over the past 90 days. My inputs for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are all lower.

Value Line projects a future average annual P/E of 17.0 that is much greater than mine (11.0). Value Line’s high EPS of $3.50/share is higher than my $2.81.

With regard to valuation, PEG is 3.2 and 10.4 (i.e. NMF) per Zacks and my projected P/E, respectively: overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is slightly low at 0.80.

I think MOS is robust because my inputs are near or below respective analyst (Value Line and others) and historical ranges. I especially lowball projected EPS growth and use a lower most-recent quarterly EPS for initial value.

The biggest strike against Interpublic Group may be its low sales growth as the engine driving stock appreciation. Management metrics and trends also suggest lack of industry leadership. The dividend is strong albeit well-discounted in the current study. If shares drop low enough price then I may be interested, but this is more a lingering personal preference than BI stock selection methodology.

Per U/D, IPG is a BUY under $27/share. BI TAR criterion is met < $21 given a forecast high price ~$41.

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