Value Guy John Rogers Likes Interpublic, So Should You?

In a recent issue of Forbes, Ariel Capital’s John W. Rogers identifies three stocks he thinks are undervalued. The first on his list: Interpublic Group (IPG).

Interpublic is the giant ad agency that’s home to businesses including McCann and Draftfcb. A few years ago, the company was a mess and hurt even more when the economy tanked and companies cut back on ad spending. Now to say, as Rogers does, that it has since “boosted profitability” seems like an understatement.

IPG Revenue TTM Chart

IPG Revenue TTM data by YCharts

It has also bought back a half billion in convertible debt.

IPG Debt to Equity Ratio Chart

IPG Debt to Equity Ratio data by YCharts

And it has bought back 52 million shares, a whopping fifth of the float.

IPG Stock Buybacks Chart

IPG Stock Buybacks data by YCharts

Even with that, Interpublic still had enough cash to pay a dividend for the first time in years.

IPG Dividend Chart

IPG Dividend data by YCharts

Rogers compares its price to expected 2012 earnings, 13.7. We prefer to look at what it has done, using trailing twelve month earnings per share. Looked at that way, it’s cheaper than rival Omnicom (OMC).

OMC PE Ratio Chart

OMC PE Ratio data by YCharts

All sounds good. But a few notes of caution: First, it’s trading higher than its historical multiple so YCharts Pro rates it overvalued.

Second, advertising is a volatile business, and even long-term relationships can be severed, as they were last year at Interpublic when it lost an SC Johnson account that it had handled for more than a half century.

And Interpublic has benefited from, of all things, Facebook (FB). It reportedly invested $2.5 million in 2006 and reaped $383 million when it unloaded in August 2011 and at the initial public offering. That's a nice chunk of change to factor in, even if Interpublic says most of its growth has been organic.

From the editors of YCharts.YCharts Pro Investor Service includes professional stock charts, stock ratings and portfolio strategies.



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