Shares in WPP add 3.2 percent, the third biggest UK blue-chip gainer, as the world's largest advertising agency group posts a better-than-expected 19 rise in 2011 profit and reaffirms its targets for 2012, prompting BofA Merrill Lynch to raise its estimates and target price for the stock.
Merrill Lynch says WPP's full-year 2011 organic growth of 5.3 percent was ahead of guidance of around 5 percent and in line with the bank's top of the range forecast, while the ad firm's operating margin of 14.3 percent was ahead of Merrill's 14 percent forecast.
The bank increases its 2012 organic growth to 3.5 percent from 2.8 percent and targets a 40 basis point margin improvement to 14.7 percent.
Merrill says this, combined with the higher 2011 base, increases its EPS estimates for EPP by around 5 percent for 2012 to 74.4 pence, and by circa 8 percent longer-term.
As a result, it raises its price target for WPP to 1,000 pence, up from 925 pence, and reiterates its "buy" rating on the stock.
"Agencies remain our preferred sub-sector given attractive valuations and positive earnings momentum. We favour WPP given its leading emerging market exposure and see scope for an improving trend for Consumer Insight in H2 to drive a re-rating, closing the valuation gap with Publicis," Merrill says in a note.
Richard Hunter, Head of Equities at Hargreaves Lansdown Stockbrokers, commented: "(WPP) shares have been rewarded of late for the company's progress, having risen 31 percent over the last six months as compared to an 8 percent gain for the wider FTSE100."
"Over the last year, however, the shares have drifted 5 percent (FTSE100 down 1 percent), which could well give an entry opportunity for investors, where the general market view of the shares as a buy has again been vindicated today," Hunter adds.
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