Pivotal Downgrades WPP As Downside Risks Move To The Forefront

The recent rally in shares of WPP PLC (ADR) WPP has made an analyst at Pivotal Research uncomfortable, prompting a downgrade.

The Analyst

Analyst Brian Wieser downgraded shares of WPP from Buy to Hold and lowered the pence-denominated price target for the London-listed shares from 1,330 pence to 1,230 pence.

The stock recently rose above Pivotal's prior price target before pulling back.

The Thesis

Notwithstanding the positive long-term view Pivotal holds on WPP, downside risks will preoccupy investor minds, Wieser said in a Monday note.

Some of the factors that could catalyze an upward move in WPP stock are the following, the analyst said: 

• The sale of Kantar, which could fetch cash required to reduce debt or pursue M&A, in turn raising the growth rate.
• A new CEO appointment, which could potentially bring about a change in the strategic direction of the company.
• Liquidation of some of WPP's investment portfolio.

Weiser sees the following as pushbacks for the stock:

• In the eventuality of the new CEO being an outsider, disruptions in the management and business are likely.
• The trend of moving media in-house posing a threat to traditional agencies.

"While we remain positive around the long-term durability of the agency sector and the potential for WPP to return to a position of industry leadership, our present view is neutral on the stock as well as on each of its peers," the analyst said. 

The Price Action

Despite their recent uptick, the NYSE-listed of ADRs of WPP have lost about 8.2 percent year-to-date.

Related Links:

How Ad Companies Have Responded To A Changing Media Landscape