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Should I Buy WPP PLC?

I’m out shopping for shares again. Should I add WPP (LSE: WPP) (NASDAQ: WPPGY.US) to my Christmas wish list?

Ugly beautiful

In tough times, advertising and marketing budgets can quickly get the chop. So when global marketing company WPP’s share price was on a roll earlier this year, optimists saw it as a sign that the recovery was here. When I last reviewed WPP, back in March, it had mastered the art of “winning ugly”, grinding out results against the odds. Would I buy it today? 

WPP has enjoyed a barnstorming 2013, up 56% in 12 months and 22% in six months, against 11% and 0% for the FTSE 100 as a whole. Markets cheered its recent Q3 update, which showed reported revenues up 7.4% to £2.68 billion, and a 5% rise in like-for-like revenue growth. It also delivered £4.9 billion worth of new business in the first nine months of the year. As well as boosting revenues, WPP has cut costs, raised margins and paid off a bit of debt.

Where there’s ROCE there’s fire

WPP boasts some impressive figures, including 77% return on capital employed (ROCE), and solid operating margins of 12%. It has been helped by the delays surrounding new rival US advertising conglomerate Omnicom/Publicis, announced in July, which has been held back by regulatory delays. But the new entity will ultimately be tough competition, with the combined group commanding more than 40% of US media spend. So the future could get tougher.

WPP is expanding through rampant acquisition. It has been on a buying spree lately, snapping up Dutch digital marketing company Media Republic Development, Johannesburg-based strategic communications agency Cerebra Communications, Turkish social media agency Y&R and UK app and mobile device maker Bottle Rocket, all in November. These acquisitions should bolster WPP’s strategy to improve its digital, online and social marketing abilities, an exponentially growing part of the marketing industry.

Give me a W….

As I look forward bullishly to 2014, I am keen on this stock, and I’m not the only one. UBS recently lifted its target price from 1300p to 1500p, while Jefferies is even more ambitious, raising its target price from 2150p to 2300p. Today, you can buy it for just 1317p. The yield is nothing to advertise at just 2.2%, although with 2.7 cover there is scope for progression. WPP is also expensive, at 16.9 times earnings, but sometimes you have to splash out to get what you want.

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> Harvey doesn't own shares in any company mentioned in this article