An Analyst Sees 50% Upside In Stagwell, Calls It Inexpensive Compared To Other AdTech Companies

Needham analyst Laura Martin initiated coverage of Stagwell Inc STGW with a Buy rating and a $9 price target. She believes revenue and EPS are predictable, owing to 20% of annual revenue from recurring maintenance contracts plus 60%-70% of revenue from multi-year contracts. 

STGW has revenue and EPS upside from its Advocacy agencies, he noted. 

For example, Targeted Victory keeps 5%-10% of the funds it raises from long-tail donors, which rose from $100 million 8 years ago to a projected $1.2 billion in 2022 and will be $2 billion during the Presidential cycle of 2024.

In 2Q22, STGW grew faster than other ad agencies owing to its digital capabilities, Martin noted. Specifically, 57% of STGW's net rev and 62% of Adj EBITDA in 2Q22 came from digital services. 

STGW is inexpensive compared to the 11 ad-driven companies she covers, with material valuation multiple upsides. STGW's improving debt ratings lower STGW's average cost of capital, which drives upside valuation, he believed.

Following its Aug 2021 corp reorganization, STGW has been aggressively cutting costs. In addition, STGW has been growing its offshore engineering teams. All of which could drive EBITDA margins.

Martin found that STGW has a strong M&A track record of buying companies inexpensively, retaining top talent, and creating a collaborative corporate environment that accelerates revenue growth by winning incremental new business as it adds new capabilities.

Digital advertising is now over 50% of total U.S. advertising because it allows personalized targeting of consumers on their smartphones, tablets, and laptops. The growing complexity and audience fragmentation aid STGW as Media Mix Modeling become more critical, Martin added.

Price Action: STGW shares traded higher by 1.18% at $6.41 on the last check Tuesday.