JPMorgan Lowers Their Advertising Projections for the Year

In a 100 page report published last week, JPMorgan analyst Alexia Quadrani, one of the most well respected Wall Street analysts, lowered her global advertising estimates for 2009 to a decline of 5.5%, which assumes a 9% decline for the domestic market.

Her "U.S." Advertising Forecast and her comments:


• Our annual Advertising 101 piece is out today with an in-depth look at the global ad market, current trends, and an analysis of the six advertising and marketing services stocks we cover. We have included an expanded section this year on macro trends, how the ad market (and the stocks correlated to it) trend in recessions and expansions, and a close look at the changes in the auto industry and how that may impact an eventual recovery.

• We are lowering our 2009 global ad forecasts to -5.5% which assume a 9% decline in the US this year. Specifically in the US, we are projecting a 20% decline in local advertising and a 6.5% decline in national. Our preliminary estimate for 2010 suggests more modest declines, down 2% in the US and down 1% global.

• Our outlook for the advertising and marketing services stocks is largely unchanged as we believe these businesses will weather the storm better than most given their diversified revenue streams by geography and discipline, as well as their somewhat variable cost structure. We believe the approximate historical 200 basis points of outperformance to the overall market will continue as our organic revenue growth assumptions for 2009 are around -4% versus global decline in the overall market of 5.5%.

• We have tweaked down our estimates for both OMC and IPG largely reflecting a hit to profits from further severance expense expected in Q1. We are looking for organic revenue to decline 6.5% at OMC and IPG, with margins down 100-200 basis points on average, largely reflecting severance expense in the quarter. Our estimates for our other stocks remain unchanged at this time.

• Our advertising and marketing services group has outperformed the S&P year to date and we would expect this superior relative performance to continue as these stocks remain good places to hide as long as the ad market deteriorates. Our favorite name remains IPG given its valuation (3.2x 09 EBITDA) and relatively less exposure to Europe, which we believe will continue to be a headwind long after the US begins to recover.

There were a few other charts in the report that I found interesting: