Could WPP (LSE: WPP) be one of the best-value FTSE 100 stocks to buy right now? The advertising agency has gained a terrific 75% in value over the past year as marketing budgets have steadily recovered. This includes an 8% daily rise on Thursday following the release of latest financials.
But, on paper, I think WPP shares still look mightily cheap. City analysts think earnings at the business will rocket 24% year-on-year in 2022. This leaves it trading on a price-to-earnings growth (PEG) ratio of 0.8 for next year. A reminder that a reading below 1 suggests a stock could be undervalued by the market.
Advertising budgets continue to rise strongly across the globe. And WPP has the scale to make the most of this opportunity. Yesterday, it announced revenues (minus pass-through costs) had jumped 15.7% year-on-year for the third quarter on a like-for-like basis. Sales were also up 6.9% from the same three months in 2019.
Forecasts upgraded again
Trading has been so strong. In fact, WPP hiked its full-year sales forecasts again for 2021. It now expects like-for-like revenue (less pass-through costs) to rise between 11.5% and 12% from last year’s levels. This compares to previously-estimated growth of 9-10%.
Moreover, the FTSE 100 firm said its headline operating margin should exceed 14% in 2021. It had previously guided growth towards the upper range of a 13.5-14% target.
WPP has raised its forecasts several times already this year as the ad market recovery continues. It’s a theme which I don’t think is currently reflected in WPP’s current rock-bottom valuation. Chief executive Mark Read said on Thursday that “clients across all sectors and geographies are making significant investments in marketing, particularly in digital media and ecommerce services.”
I think further upgrades could well be in the offing.
A FTSE 100 share I’d buy
That’s not to say WPP’s rebound from 2020’s lows isn’t at risk. Against a backcloth of soaring inflation and rising Covid-19 cases in parts of the world, the economic recovery — and by extension the bounceback in advertising revenues — might be in jeopardy.
But as things stand, the outlook remains promising for WPP and its media counterparts. For instance, this week also saw the Advertising Association (AA) and WARC lift their UK advertising spending forecasts for the UK market for 2021. They now expect ad budgets to have risen 24.8% year-on-year this year. That’s up a hefty 6.6% from the previous predictions made in June. The AA and WARC expect the market to continue growing in 2022, up 7.7%. This is also up from prior estimates.
Pleasingly for WPP too, it seems as if online media will continue to drive industry growth. The company has made boosting its digital operations a cornerstone of its growth strategy in the post-Martin Sorrell era. And the company’s terrific cash generation has helped it build a capex warchest of between £450m and £500m with which to continue building in this area.
I wouldn’t just buy this FTSE 100 firm for 2022. I think WPP could deliver spectacular shareholder returns over the next decade and possibly beyond.