Omnicom Gains on Flywheel Acquisition Amid Low Liquidity

Omnicom Group Inc. OMC shares have risen 5.4% against the 4.8% decline of the industry it belongs to.

The company gains from investments made in precision marketing, data, analytics and others. Diversification in its revenue stream helps it tackle the dynamism of the advertising and marketing industry. However, a current ratio of less than 1 may pose a threat to the company paying off its short-term obligations.

OMC reported impressive first-quarter 2024 results. Earnings of $1.67 per share beat the consensus estimate by 9.9% and increased 7.1% year over year. Total revenues of $3.6 billion surpassed the consensus estimate by 1.6% and increased 5.4% year over year.

How is OMC Doing?

Omnicom has invested in multiple avenues, including real estate, back-office services, procurement, IT, data, analytics and precision marketing as part of its internal development initiatives. Driven by these investments, we anticipate the company to witness higher revenues on organic growth.

The 2023 acquisition of Flywheel and the improvement in Global Media's business performance benefit OMC's top line. We expect revenues to grow 5.5%, 3.7% and 5.7% in 2024, 2025 and 2026, respectively.

The company has a consistent record of returning value to shareholders in the form of dividends and share repurchases. In 2023, Omnicom paid out dividends of $562.7 million and repurchased shares worth $570.8 million. In 2022, the company paid out dividends of $581.1 million and repurchased shares worth $611.4 million. In 2021, it paid out dividends of $592.3 million and repurchased shares amounting to $527.3 million. Such actions not only instill investors' confidence but also positively impact the bottom line.

The advertising and marketing industry has an ever-evolving and dynamic marketing landscape. OMC's presence in various segments of the advertising and marketing industry not only diversifies its revenue streams but also assists it with the flexibility and expertise required to effectively navigate in this industry.

More than 53% of 2023 revenues are derived from the Advertising & Media segment. We anticipate this segment to drive 55.6% of the total revenues in 2024.

Omnicom's current ratio (a measure of liquidity) at the end of the first quarter of 2024 was pegged at 0.93, lower than 0.95 in the preceding quarter and 0.96 in the year-ago quarter. A current ratio of less than 1 indicates that the company may have problems paying off its short-term obligations.

Zacks Rank & Stocks to Consider

OMC currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Business Services sector are Fiserv FI and Nu.

Fiserv presently carries a Zacks Rank of 2 (Buy).

FI has a long-term earnings growth expectation of 14.3%. It delivered a trailing four-quarter earnings surprise of 2.3%, on average.

Nu currently has a Zacks Rank of 2. It has a long-term earnings growth expectation of 51.8%.

NU delivered a trailing four-quarter earnings surprise of 13.9%, on average.

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