Advertising's Resilience Amid Tariffs: Why Omnicom and IPG Offer Value Despite Headwinds

Citi’s recent analysis underscores a compelling opportunity in the U.S. advertising sector, even as tariffs cast a shadow over 2025 revenue forecasts. While tariffs are expected to dampen U.S. advertising spend by 6% below pre-tariff estimates in 2025, the strategic merger of Omnicom (OMC) and Interpublic Group (IPG) positions the combined entity as a rare value play in a challenging macroeconomic environment.

The Tariff Impact: A Near-Term Headwind

Citi’s research paints a clear picture of the challenges: U.S. advertising spend is projected to fall 5% in 2026 compared to earlier expectations, with Omnicom’s organic growth slowing to 1% and IPG’s revenue declining by 3.5% in 2025. These cuts reflect broader economic pressures, including inflationary spikes of 1–2 percentage points and GDP declines of up to 2% over the next year. The consumer spending slowdown indirectly weakens ad demand, as brands tighten budgets.

Why the Merger Matters: Scale and Value

The proposed merger of Omnicom and IPG, however, offers a lifeline. Analysts argue the combined firm is undervalued, trading at 9x 2026 EPS, a multiple last seen during the 2008 financial crisis. This stark discount contrasts with projected $8.26 of adjusted EPS in 2026, rising to $9.42 in 2027, supported by $750 million in identified cost savings.

The merger’s strategic advantages are twofold. First, the enlarged firm gains global scale, with overseas revenue streams—accounting for a “meaningful share” of total revenue—acting as a buffer against U.S. tariff pressures. Second, the combined entity’s data and digital capabilities (e.g., advanced marketing tech platforms) provide a competitive edge, enabling better client service than standalone operations.

Macroeconomic Context: Risks vs. Resilience

While tariffs threaten stagflation, Citi highlights mitigating factors. The $500 billion annual tariff revenue (1.7% of GDP) and regulatory easing under Trump could offset some economic drag. Additionally, the U.S. economy’s recent 3% GDP growth suggests resilience, though risks remain if tariff impacts peak in early 2026.

For investors, the key is separating cyclical pain from structural strength. The advertising sector’s $750M cost savings and pro forma EPS growth argue for a long-term view. Meanwhile, sectors like retail face sharper declines, with profit forecasts likely to be cut further in Q2 2025 as tariff impacts materialize.

Navigating Risks: A Balanced Perspective

Citi’s analysis also flags critical uncertainties:
- Retaliation Levels: Limited one-for-one tariffs are expected, but select countries (e.g., Canada’s 50% steel tariffs) could escalate tensions.
- Policy Uncertainty: The White House’s tolerance for economic disruption and final tariffs on Mexico/Canada (30% of U.S. imports) remain unresolved.

Yet, these risks are already priced into the 9x 2026 EPS multiple, creating a margin of safety. The merger’s valuation implies a worst-case scenario, making the combined firm a potential beneficiary if macro risks subside.

Conclusion: A Compelling Case for Selective Exposure

Despite near-term tariff headwinds, the Omnicom-IPG merger emerges as a compelling investment. With $750M in cost savings, overseas revenue buffers, and a 9x EPS multiple at a historical low, the combined entity offers asymmetric upside. Citi’s price targets—$103 for Omnicom and $35 for IPG—are grounded in realistic deal conversion terms and 2027 EPS growth.

While broader economic risks persist, the advertising sector’s structural advantages—digital innovation, global diversification, and merger synergies—position it to outperform once tariff impacts peak in early 2026. For investors willing to look past near-term volatility, this sector remains a rare value opportunity in a challenging macro environment.

Data sources: Citi Research, Omnicom/Interpublic Q2 2024 earnings reports, U.S. Bureau of Economic Analysis.