Interpublic Group of Companies Inc. Annual Valuation – 2015 $IPG

IPG_LogoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – February 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Interpublic Group of Companies Inc. (IPG) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Interpublic Group of Companies, Inc. (Interpublic) is an advertising and marketing services company. Interpublic’s companies specialize in consumer advertising, digital marketing, communications planning and media buying, public relations and specialized communications disciplines. The Company has two segments: Integrated Agency Networks (IAN) and Constituency Management Group (CMG). IAN consists of McCann, Draftfcb, Lowe, Mediabrands and its domestic integrated agencies. CMG consists of a number of its specialist marketing services offerings. The Company has three global networks: McCann Worldgroup (McCann); Draftfcb and Lowe & Partners (Lowe), that provide advertising and marketing solutions for clients, and three global media services companies, UM, Initiative and Brand Programming Network (BPN), operating under the IPG Mediabrands umbrella.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 1/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years - FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years - FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years - PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $21.79
MG Value $34.16
MG Opinion Undervalued
Value Based on 3% Growth $12.87
Value Based on 0% Growth $7.54
Market Implied Growth Rate 8.03%
Net Current Asset Value (NCAV) -$6.72
PEmg 24.56
Current Ratio 1.05
PB Ratio 4.33

Balance Sheet - December 2014

Current Assets $7,810,000,000
Current Liabilities $7,463,000,000
Total Debt $1,624,000,000
Total Assets $12,747,000,000
Intangible Assets $3,844,000,000
Total Liabilities $10,631,000,000
Outstanding Shares 420,000,000

Earnings Per Share

2014 $1.12
2013 $0.61
2012 $0.94
2011 $0.99
2010 $0.47
2009 $0.19
2008 $0.52
2007 $0.26
2006 -$0.19
2005 -$0.68
2004 -$1.36

Earnings Per Share – ModernGraham

2014 $0.89
2013 $0.73
2012 $0.73
2011 $0.58
2010 $0.33
2009 $0.18

Dividend History


Interpublic Group of Companies Inc. (IPG) is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, short dividend history, insufficient earnings growth or stability over the last ten years along with the high PEmg and PB ratios.  The Enterprising Investor is concerned with the level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.33 in 2010 to $0.89 for 2014.  This level of growth is greater than the market’s implied estimate of 8.03% growth, leading the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well above the price.

Be sure to check out previous ModernGraham valuations of Interpublic Group of Companies Inc. (IPG) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Interpublic Group of Companies Inc. (IPG)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Interpublic Group of Companies Inc. (IPG) at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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