Stagwell's Strong Q4 Performance Prompts Analyst to Highlight 8 Deals, Reduced Cash Payouts, and Additional Stock Buyback for Buy Rating

Needham analyst Laura Martin reiterates Stagwell Inc STGW with a Buy and a $9 price target.
STGW reported 4Q22 GAAP revenue of $708.2 million, net revenue of $583.4 million, operating income loss of $(13.8) million, adjusted EBITDA of $123.3 million, and adjusted EPS of $0.22.
The analyst highlighted that STGW has essentially finished building its infrastructure through the eight companies it purchased in 2022, many of them via earn-outs.
In 2023, Martin noted that STGW would buy products to plug into these infrastructure investments. Since marginal returns on capital should be very high for these add-on products, it will pivot to paying cash upfront, with no upside participation for the sellers.
STGW expects cash payouts related to prior acquisitions to be $60 million in 2023, down from $72 million in 2022 and expects these payments to be trivial starting in 2024.
On March 1, 2023, the STGW board authorized an additional $125 million increase in its share repurchase program, totaling $250 million.
The CEO stated on the call that he would spend much of his time in 2023 on expanding STGW's Cloud business and assets.
STGW believes it is gaining market share vs. its ad agency competitors because it is more digital than those competitors.
STGW's 2023 guidance is for 10%-14% net revenue growth, ex advocacy, adjusted EBITDA of $450-$490 million, FCF conversion from EBITDA of 50%-60%, and adjusted EPS of $0.90-$1.05. Including advocacy, they expect 7.5%-10% Y/Y revenue growth in 2023.
Price Action: STGW shares traded higher by 8.25% at $8.21 on the last check Friday.

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