Omnicom Expands its Global Reach - Analyst Blog

Unit of Omnicom Group Inc. (OMC), Diversified Agency Services (DAS), acquired the U.K. based design and communications agency, The Core.

Part of Diversified Agency Services (DAS), Adelphi Worldwide, partnered with Face to Face GmbH, Cologne-based healthcare communications agency, to enhance its market research and strategic communications.

In addition to the above, Adelphi has recently acquired U.K.-based Excerpta Medica and established Adelphi Germany to expand its global reach and its presence in Germany, respectively.

Omnicom has improved coordination among the diverse advertising and marketing strategies of its global customers, which should augment cross-selling opportunities across its businesses.

Typically, Omnicom's strategy revolves around acquiring complementary companies with strong entrepreneurial management teams to expand its client base. During fiscal 2009, Omnicom acquired 4 subsidiaries and increased its stake in various existing ones.

The increased integration process would enhance its client base, which is its key growth strategy as Omnicom's business revolves around its clients. Improving economic conditions currently should also benefit Omnicom as they encourage clients to increase spending.

Omnicom posted strong results during the third quarter of fiscal 2010 with an EPS of 57 cents, which met the Zacks Consensus Estimate.

However, this huge dependence on clients is risky as the loss of a client or reduction in client spending would adversely affect the company's results. An intensely competitive advertising environment and pricing pressures remain causes of concern.

Omnicom's direct competitors are Interpublic Group of Companies Inc. (IPG) and WPP plc (WPPGY). However, management remains committed to expand its business and relationships in Asia, where operating conditions remain extremely favorable. This should improve the long-term profitability of the company.

Markets are picking up and the improving economic conditions should benefit Omnicom as they help to increase consumer spending. We continue to rate the stock as Neutral in the long term. The stock's short-term rating also remains Hold with a Zacks #3 Rank.