Analysts Upgrade Agency Outlook, Caution Industry Remains In Transition, 'At Best'

While big agency holding company stocks continue trading below pre-COVID-19 levels -- and lag comparable marketing and media related equities, as well -- at least one equity research group has revised its outlook upward given relatively strong second quarter reporting by Publicis this week. While the report sent to investors this morning by BMO Capital Markets' Daniel Salmon is an improvement over Wall Street's current consensus outlook for ad agency stocks, Salmon nonetheless cautions the publicly traded agency sector remains "in transition at best.

"We continue to only recommend Interpublic for share gains that we expect to continue," he explains, adding, "But our views are tempered by the fact that we don’t think investors will be willing to drive multiple expansion unless either the group as a whole can recover to mid-single digit organic growth (of which we remain skeptical), or consolidation expands beyond holding companies’ merely merging agencies together, and instead looking to combine and more aggressively to remove corporate overhead."

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