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TheStreet Open House

Why Omnicom (OMC) Stock Continues to Decline

Stocks in this article: OMCPUBGY

NEW YORK (TheStreet) -- Shares of Omnicom Group (OMC) continue to fall this afternoon after it was reported that the advertising agency's proposed $35 billion merger with Publicis Groupe S.A. (PUBGY) was at risk. 

The shares are down -2.24% to $69.89.

Unforeseen tax issues have thrown the $35 billion merger... into jeopardy, threatening to torpedo plans to create the world's largest advertising and communications company by revenues, the Financial Times reports.

The deal, the Times continued, is structured so that neither company nor their shareholders pay any tax related to the merger, but the groups have struggled to get the arrangement signed off by tax authorities in France, the Netherlands and the U.K.

The deal was announced last July

"There is no plan B. Those things are a requirement to get to a closing," said Omnicom CEO John Wren.

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TheStreet Ratings team rates OMNICOM GROUP as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:

"We rate OMNICOM GROUP (OMC) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, solid stock price performance, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 3.9%. Since the same quarter one year prior, revenues slightly increased by 2.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
  • Net operating cash flow has increased to $1,449.10 million or 25.87% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -11.98%.
  • OMNICOM GROUP reported flat earnings per share in the most recent quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, OMNICOM GROUP increased its bottom line by earning $3.72 versus $3.61 in the prior year. This year, the market expects an improvement in earnings ($4.05 versus $3.72).
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • Even though the current debt-to-equity ratio is 1.14, it is still below the industry average, suggesting that this level of debt is acceptable within the Media industry. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.76 is weak.
  • You can view the full analysis from the report here: OMC Ratings Report
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