IPG Hefty Price for Revenue Diversification

 Interpublic Group (IPG) announced it is acquiring the marketing solutions business of Acxiom, a data solutions provider. In our view, while IPG will gain access to valuable global consumer data which can help the firm diversify its revenue and possibly become a one-stop shop for advertisers, Acxiom's marketing solutions will also require more capital expenditure for system maintenance and data management, likely offsetting benefits of faster top-line growth and slight margin expansion. Plus, this $2.3 billion all-cash acquisition represents 3.5 times trailing 12-month revenue, which we think might be too high given that revenue has declined the last three years. After incorporating our estimated impact of this acquisition on IPG's top and bottom line in our 10-year explicit forecast period, we are maintaining our $25 per share fair value estimate. While IPG shares are down nearly 3% in reaction to the announcement, we continue to recommend a wider margin of safety before investing in this narrow moat and medium uncertainty rated name.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.