Economic recovery leading to a rise in manufacturing and service activities, along with increased digital marketing services and success of the work-from-home trend, is enabling the Zacks Advertising and Marketing industry to counter the pandemic prevailing-induced challenges.
Remarkably, customer-centric approaches to business, digital strategies and technology investments are helping Harte Hanks HHS, The Interpublic Group of Companies, Inc. IPG and WPP plc WPP to sail through these testing times.
About the Industry
The Zacks Advertising and Marketing industry comprises of companies that offer an extensive range of services, including advertising, branding, content marketing, digital/direct marketing, digital transformation, financial/corporate business-to-business advertising, graphic arts/digital, healthcare marketing and communications, and in-store design services. Prominent players from the industry include The Interpublic Group of Companies and Omnicom. The pandemic will continue to change the way industry players have conducted business and delivered services so far. Currently, the industry’s key focus is on channelizing money and efforts toward media formats and devices. To position themselves suitably in the post-pandemic era, service providers are increasing their efforts toward formulating strategic initiatives and identifying sources of dem
What’s Shaping the Future of the Advertising Industry?
Economic recovery: The industry is a beneficiary of manufacturing and service activities, which, in turn, are dependent on economic health. Notably, a steady economic recovery is evident from the fourth-quarter 2021 GDP number, which according to the “third” estimate released by the Bureau of Economic Analysis, has increased at an annual rate of 6.9% compared with the rise of 2.3% in the third quarter. The March Services PMI, measured by the Institute for Supply Management, touched 58.3%, 1.8% higher than February’s reading, recording the 22nd consecutive month of expansion in economic activity. Although economic activity in the manufacturing sector shrunk 1.5% from February to March, with the Services PMI touching 57.1%, the reading of above 50% marked the 22nd consecutive month of expansion.
Reviving Demand: The industry is mature, with demand for services remaining strong over time. Revenues, income and cash flows are anticipated to gradually reach pre-pandemic healthy levels, aiding most industry players to pay out stable dividends.
Digital Marketing Gathering Steam: Amid the pandemic, digital media consumption has shot up, with consumers spending more time on various media platforms and video-streaming services. Thus, agencies offering digital marketing services stand to gain, as these firms are better positioned to address this rapid change in customer preference. According to Magna’s most recent forecast, ad dollars in the United States will reach $320 billion, crossing the $300-billion mark for the first time.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Advertising and Marketing industry, housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #46. This rank places it in the top 18% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term growth prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and current valuation:
Industry’s Price Performance
Over the past year, the Zacks Advertising And Marketing industry lagged the S&P 500 but outperformed the broader composite sector.
The industry has appreciated 1.9% against the S&P 500 composite’s decline of 18.7% and the broader sector’s 51.2% decline.
One-Year Price Performance
Industry’s Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing advertising and marketing stocks, the industry is currently trading at 9.78 compared with the S&P 500’s 18.41 and the sector’s 25.58.
Over the past five years, the industry has traded as high as 16.25X, as low as 9.08X, and at the median of 12.11X, as the charts below show.
Forward 12-Month Price-to-Earnings (P/E)
3 Advertising Stocks to Consider
We present three stocks that are well positioned for near-term growth:
Interpublic: With a flexible business model in place, this global provider of advertising and marketing services has been focusing on its strategic priorities, promptly investing in talent and offerings, and managing operating costs amid the pandemic.
The Zacks Consensus Estimate for the ongoing-year EPS has been revised 0.7% upward in the past 60 days. The stock has appreciated 17.6% over the past year. Interpublic currently carries Zacks Rank #2 (Buy).
Price and Consensus: IPG
Heart Hanks: This company provides various multi-channel marketing services in the United States and internationally. It is currently benefiting from investment in technology infrastructure and new business wins. It anticipates considerable margin improvement going forward due to the consolidation of fulfillment operations into the KC facility.
Harte Hanks carries a Zacks Rank #1, with the Zacks Consensus Estimate for the current-year EPS remaining unchanged at 1.34% in the past 30 days. Shares of the company have rallied 59.3% in the past year.
Price and Consensus: HHS
WPP: The company is a provider of communications, commerce and technology services. Its service executions have been robust through the pandemic. The company sees strong growth opportunities in communications areas like digital media, e-commerce media and programmatic.
WPP currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for the current-year EPS has remained unchanged at $5.86 in the past 30 days. Shares of the company have rallied 33.6% in the past year.
Price and Consensus: WPP
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