August 20, 2008 - Omnicon Group, Inc. (OMC-NYSE) provides advertising, marketing, and corporate communications services. It offers services in traditional media advertising, customer relationship management, public relations, and specialty communicationsgroups. The company's services include advertising, brand consultancy, corporate social responsibility consulting, crisis communications, custom publishing, database management, digital and interactive marketing, direct marketing, directory advertising, entertainment marketing, environmental design, experiential marketing, fieldmarketing, financial/corporate business-to-business advertising,graphic arts, healthcare communications, and instore design.

Yes, it's in advertising, and everyone knows that ad budgets are getting cut, especially in the U.S. But Omnicom is much more than advertising, and its client base is much larger than American companies. And one more thing: earnings keep growing.

While the stock has slowly meandered from a high of $55.40 last year (prices reflect 2 for 1 stock split in mid-2007), to a current level of $42.13, earnings continue to increase. While the market in general has had an awful time in the same period, OMC is probably suffering from the industry disdain investors have for advertising. That's a little short sighted if applied to OMC. Not only does it offer all the services described above, it also has a large international client list. In fact, the international revenues were up almost 18% in the June quarter to $1.725 billion, compared to the same quarter last year.

Earnings rose by 14% in the quarter to 96 cents. That's right where analysts' consensus was, but in the previous 3 quarters, OMC beat analysts' expectations by 4.8%, 1.1% and 1.6% respectively. For the September quarter, consensus is for 69 cents a share, then $1.06 in the final quarter. For the year, look for $3.35, up from $2.95 last year, then in 2009, expectations are for $3.65. For the last 5 years, earnings grew (per annum) at a rate of 14.12%. Analysts look for an increase of 11.5% per annum in the next 5.

Advertising is at the leading edge of economic cycles: when times are good, it's one of the first budget items to increase; when times are tough, it's the first budget item to see cuts. That's what makes OMC rather remarkable. In spite of the tougher U.S. economic cycle, revenues and sales continue to climb. No one expects a good advertising market in the U.S. for at least a year. That still won't stop OMC from growing its sales by at least 10%, thanks to international markets. Revenues last year were $12.7 billion. This year, analysts expect $13.98 billion, then $14.73 billion next year.

More numbers: Price to Book is 3.2. Price to Sales 1.02. Return on Equity is 26% and has been above 20% for the last 4 years. Profit margin is 7.7%. Market Cap is $13.45 billion. Beta is .77. The stock price is down 13.26% in the last 12 months with a high of $53.07 and a low of $39.77 in that time period. There are 318.8 million shares outstanding. Institutions own 88.1% of the stock. There's an annual dividend of 60 cents a share, for a yield of 1.4%.

Omnicom is growing, in spite of a tough domestic economy. It's a diverse, multi-national, multi-service company, offering much more than advertising. But many investors only see that part of the company and are either selling the stock or staying away. Sharp investors will look deeper into the facts and may find a compelling value here.

Company Web site: www.omnicomgroup.com

- Ted Allrich