Just eight weeks after reeling from a triple whammy of plummeting stock values, allegations of accounting malpractice and investor lawsuits [WAMN: 14-Jun-02], Omnicom Group has regained the fickle affections of the investment industry – more specifically, of investment bank Merrill Lynch. And where the Thundering Herd leads, the timorous herd usually follows.
Omnicom, the world’s third largest agency group, was last week named by Merrill as eleventh in a list of ‘*high quality’ earnings companies. And among companies rated ‘strong buy’ or ‘buy’ by Merrill’s reformed corps of analysts, Omnicom rose to sixth position
A number of factors contributed to Omnicom’s return to a state of fiscal grace – not least, say cynics, the recent clampdown on Merrill analysts’ assessment practices demanded by the New York state attorney general Elliot Spitzer following an investigation into analyst bias and stock manipulation [WAMN: 10-Apr-02]. A settlement was reached in May and no charges were pressed.
But the main trigger for Omnicom’s rehabilitation is the group’s robust Q2 performance reported last week: net income up 24% year-on-year to $187.3 million (€193.28m; £121.62m), or $1 a share.
In mid-June Omnicom shares languished at $50.94; at close of trading Friday they stood at $55.25.
* Merrill’s so-called ‘high quality’ earnings are identified by six key income statement and balance sheet measures indicating the ability to generate consistent earning over time without increased risk or leverage. Of the six measures discussed in its report (Quality of Earnings: Towards a 360o View of Reality), four are based on historical financial statements – pretax return on capital, cash realization, productive asset reinvestment and the tax rate – and two on S&P measures (common stock ranking and credit rating).
Data sourced from: AdAge.com; additional content by WARC staff