IPG Sees Stars

I woke up this morning to an email in my in box from Morningstar alerting me to the fact they’ve elevated Interpublic shares to a “five-star” ranking.

I know it’s been a tough few years for you, but before all you Lowe and FCB ad monkeys out there send up a collective cheer, you should know that Morningstar hands out its stars based on value. In other words, if a particular stock has a fair market value of $10 and it’s price is currently way down in the trenches and selling for $5, it gets more stars.

That’s the case of what’s happening to IPG.

I work for an agency that has an ownership stake held by a small large grotesquely gargantuan holding company, so I like to keep an eye on the other guys, and IPG is one of the other guys.

IPG has had a rough time of it, as of late.

Interpublic was a darling of the 1990s’ bull market. During this time, advertising spending grew faster than the economy and Interpublic turbocharged profit growth by making scores of acquisitions, many of which did not make a lot of sense. Not only that, Interpublic lacked the proper controls to accurately account for much of this growth, especially when it came to non-U.S. acquisitions, leading to improper accounting, financial shenanigans, and, ultimately, several years of accounting charges, asset write-downs, and financial restatements. (Morningstar)

WPP and Omnicom have benefited greatly at IPG’s expense as clients have fled the financially troubled waters and mergers and buyouts have taken their toll (like when PepsiCo bought Quaker and moved the advertising duties for Gatorade, et al, over to Omnicom-roster shops and away from FCB Chicago).

To be fair, by all outward appearances, they’re trying to clean up their act. Michael Roth has a business background and appears to be trying to do the right thing, though it should be noted he was head of the audit committee during IPG’s years of dubious bookkeeping.

And now they’re getting five stars which, in the big scheme of things, means the market either isn’t buying– or hasn’t yet caught up to– the fact that their fair market value is higher than their current share price.

I certainly wish them well, but can they pull it out?

Interpublic is still in the midst of a turnaround and we wouldn’t rule out additional surprises. Beyond that, the advertising scene is changing quickly and Interpublic has not shown that it’s successfully adapting. Rivals could continue to steal market share and limit Interpublic’s growth. (Morningstar)

IPG could very well be a value right now, but I don’t plan on becoming a shareholder.

Email Article Wednesday, March 22nd, 2006 at 07:40pm Mack Simpson

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