Merrill Lynch's Lauren Rich Fine downgraded the stock to "sell" and issued a withering report on the third-largest ad holding company's current status. In a softer report, Bear Stearns' Alexia Quadrani maintained its "Peer Perform" rating but wondered how recent account losses would affect the company's chance to compete with larger rivals Omnicom Group and WPP Group.
The reports come in the wake of Interpublic's loss of Bank of America's $600 million account to Omnicom and the news that Interpublic's financial issues, including the delayed financials and turnover in the chief financial officer office, played a role in the bank's decision to split.
Interpublic has yet to file audited financial information with the Securities Exchange Commission for full-year 2004 or the first two quarters of 2005, citing weaknesses in internal controls. The BofA move is the latest in a string of losses that include General Motors' $3.5 billion media-buying account as well as business from L'Oreal, Mitsubishi, and Revlon-worth another $1.3 billion in combined billings-plus many smaller accounts. Another major financial client, Washington Mutual, has just put its account into review.
These are only partially offset by significant wins like Intel and Nokia.
An Interpublic spokesman declined to comment.
Ms. Fine zeroed in on those losses, writing that they've caused her to reduce growth forecasts for next year to less than 3% and that they suggest "overall instability."
"All of the cost cutting in the world will not help unless revenues stabilize," she wrote. "The recent spate of negative headlines, which include account losses, costly hires, and big name talent losses could actually be signaling further troubles ahead rather than an improvement."
Note of optimism
Citing many of the same factors as Ms. Fine, Ms. Quadrani wrote that she is reserving judgment for the figures before considering a change in the rating. Both analysts suggested that Interpublic's stock could rally when the company does report.
Interpublic stock closed Sept. 9 at $11.12 on its highest volume since March, falling 5% for the week to its lowest price this year. Its stock market capitalization-$4.7 billion-now is less than one-third that of category leader Omnicom Group.
Ms. Quadrani sounded the most optimistic note: "In the long run, we do believe Interpublic has the assets and the scale to remain a top-tier player, but regaining revenue momentum could take some time."
Contributing: Bradley Johnson