IPG Earnings: High Client Concentration in Technology and Telco Pressures Organic Growth

IPG returned to organic growth in the fourth quarter after three consecutive declining quarters as waning economic uncertainty pushed media and project spending higher. While we view the firm’s media, creativity, technology, and data analytics capabilities as similar to its peers, like WPP, its heavier client concentration in technology and telecommunication is pressuring organic growth. We expect demand in this group to improve this year. Better growth, combined with a lower headcount and more efficiency, could result in margin expansion. The narrow-moat IPG continues to trade at a discount to our fair value estimate that we are raising to $39 from $36.