Interpublic Is a Cash-Flow Cow Just Waiting to Be a Takeover Target
NEW YORK (TheStreet) -- Interpublic Group of Companies (IPG - Get Report) is the fourth-biggest advertising company in the world. Those screening for mergers and acquisitions targets know too well it is on the most-wanted list -- right, Omnicom (OMC - Get Report)?.
Interpublic's stock closed Wednesday at $19.32, flat for the day but up 9.2% year to date.
Interpublic's advertising business is a cash-flow cow that drops plenty of profits straight to the bottom line. Based in New York City and founded in 1902, it has two profitable divisions: Integrated Agency Networks and Constituency Management Group. Both segments provide various advantages and synergies.
Interpublic brands include McCann, Draftfcb, Lowe, IPG Mediabrands, Carmichael Lynch, Deutsch, Hill Holliday, The Martin Agency and Mullen. The company was formerly known as McCann-Erickson and changed its name to Interpublic in January 1961.How is IPG priced to make acquirers' mouths water? First, it has a relatively affordable market cap of $8.2 billion. Include its estimated 2014 sales growth with annual revenue of nearly $7.5 billion and you begin to see what a bargain Interpublic is. Investors interested in mergers and acquisitions candidates also look at a company's enterprise value, forward price-to-earnings ratio and price-to-sales ratio. Using these metrics, Interpublic looks even more attractive. As of Wednesday, its enterprise value was a robust $9.1 billion, its forward one-year P/E a modest 16, and its P/S ratio an underappreciated 1.16. The five-year chart below illustrates the recent history of Interpublic's share price and two key metrics related to the company's growth potential and attractive valuation.
IPG data by YCharts
As the enterprise value increases and the P/S ratio stays close to 1, the share price (blue line) keeps pushing higher and higher. I expect Interpublic to also boost its earnings per share in the current quarter by over 30%, and 28% for the full year. Few rivals can match those numbers.