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Omnicon Group Inc Valuation – July 2016 $OMC

Benjamin 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 10 Companies Benjamin Graham Would Invest In Today – July 2016.  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 stock analysis showing a specific look at how Omnicon Group Inc (OMC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Omnicom Group Inc. is a holding company. The Company provides advertising, marketing and corporate communications services. The Company’s branded networks and agencies operate in all markets around the world and provide a range of services, which it groups into four disciplines: advertising, customer relationship management (CRM), public relations and specialty communications. The Company’s services include advertising, brand consultancy, content marketing, corporate social responsibility consulting, crisis communications, custom publishing, data analytics, database management, direct marketing, entertainment marketing, environmental design, experiential marketing, field marketing, graphic arts/digital imaging, healthcare communications, interactive marketing, investor relations, marketing research, media planning and buying, mobile marketing, multi-cultural marketing, non-profit marketing, organizational communications, package design, product placement and promotional marketing.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of OMC – July 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $19,755,351,354 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.89 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 53.99% Pass
6. Moderate PEmg Ratio PEmg < 20 19.15 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 8.66 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.89 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -4.09 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

OMC value chart July 2016

EPSmg $4.32
MG Growth Estimate 5.36%
MG Value $82.94
Opinion Fairly Valued
MG Grade C-
MG Value based on 3% Growth $62.58
MG Value based on 0% Growth $36.69
Market Implied Growth Rate 5.33%
Current Price $82.67
% of Intrinsic Value 99.67%

Omnicom Group Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $3.18 in 2012 to an estimated $4.32 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 5.33% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

Omnicom Group Inc. receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

OMC charts July 2016

Net Current Asset Value (NCAV) -$34.89
Graham Number $31.76
PEmg 19.15
Current Ratio 0.89
PB Ratio 8.66
Current Dividend $2.05
Dividend Yield 2.48%
Number of Consecutive Years of Dividend Growth 7

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Total Current Assets $10,314,200,000
Total Current Liabilities $11,540,800,000
Long-Term Debt $5,022,200,000
Total Assets $20,935,200,000
Intangible Assets $9,525,800,000
Total Liabilities $18,653,300,000
Shares Outstanding (Diluted Average) 239,000,000

Earnings Per Share History

Next Fiscal Year Estimate $4.67
Dec2015 $4.41
Dec2014 $4.24
Dec2013 $3.71
Dec2012 $3.61
Dec2011 $3.33
Dec2010 $2.70
Dec2009 $2.53
Dec2008 $3.17
Dec2007 $2.95
Dec2006 $2.50
Dec2005 $2.18
Dec2004 $1.94
Dec2003 $1.80
Dec2002 $1.72
Dec2001 $1.35
Dec2000 $1.37
Dec1999 $1.01
Dec1998 $0.84
Dec1997 $0.69
Dec1996 $0.56

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.32
Dec2015 $4.05
Dec2014 $3.75
Dec2013 $3.39
Dec2012 $3.18
Dec2011 $2.96
Dec2010 $2.77
Dec2009 $2.76
Dec2008 $2.76
Dec2007 $2.46
Dec2006 $2.16
Dec2005 $1.92
Dec2004 $1.74
Dec2003 $1.58
Dec2002 $1.40
Dec2001 $1.17
Dec2000 $1.02

Recommended Reading:

Other ModernGraham posts about the company

24 Companies in the Spotlight This Week – 3/28/15
Omnicom Group Inc. Annual Valuation – 2015 $OMC
17 Companies in the Spotlight This Week – 3/29/14
Omnicom Group Inc. (OMC) Annual Valuation – 2014

Other ModernGraham posts about related companies

Nielsen NV Analysis – July 2015 Update $NLSN
Interpublic Group of Companies Inc. Annual Valuation – 2015 $IPG
Nielsen N.V. Annual Valuation – 2014 $NLSN
Interpublic Group of Companies (IPG) Annual Valuation – 2014

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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