Analyst Note| Ali Mogharabi |
Omnicom’s second-quarter revenue beat our projection, but it came in lower than the FactSet consensus. In our view, while the firm may have benefited from some clients returning to ad spending in late second quarter, questions about the possibility of a second wave of the coronavirus pandemic and the return of business lockdowns in the U.S. remain. Some cost control, mainly on the headcount, resulted in Omnicom’s adjusted bottom line beating our expectations and the FactSet consensus. Management issued guidance for a continuing year-over-year decline in revenue during the second half this year, similar to what we have assumed; although it believes the decline has decelerated since March. We did not make significant adjustments to our model and are maintaining our $79 fair value estimate. While the pandemic continues to pose risk in the near term, we think this narrow-moat name can withstand the current downturn and will quickly react favorably to any indication of an economic recovery post the pandemic. With continuing profitability and no debt coming due until May 2022, we are confident Omnicom can maintain its quarterly dividend, which is currently yielding nearly 5%.