Influential Wall Street analyst Brian Wieser this morning upgraded his rating for Interpublic’s stock from "Hold" to "Buy," despite an overall negative perspective on ad agency stock "trajectories in the next five years vs. the past five."
"All holding companies are exposed to the aftermath of increased marketer awareness of media agency fee transparency," Wieser emphasized as a key bearish factor. He added: "We think many of the problems related to this topic have occurred because clients didn’t fully understand what practices are contractually acceptable or contractually prohibited."
That said, Wieser noted that all of Madison Avenue’s large agency holding companies are being subjected to "ongoing efforts to drive down like-for-like fees." Heightened awareness of agency fee transparency has been exacerbated by the ANA’s just-released study on production fees, as well as an ongoing U.S. Department of Justice investigation of agency practices.
Coupled with ongoing concerns surrounding media-buying transparency, and the disruptive nature of technology, which is contributing to some marketers bringing services or "decision-making" in-house for both creative and media services, Wieser says investors can expect continuing pressure on agency stocks to perform.
While Interpublic "is not immune to these pressures," the company’s stock has fallen by about 20% in recent weeks and is undervalued relative to the sector’s pressures, he said.
"As our price target remains at $24 on a [year-end 2017] basis, and with 16% upside vs. Friday’s close we now rate the stock 'buy' " Wieser writes in a note sent to investors early this morning.