*Please see disclaimer at the end of this report.

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1 Interpublic Group IPG Buy Target: $27.00 Current Price: $20.04 Investment Thesis Net margins have improved by more than 50% since We expect continued margin expansion through the next few years. Despite missing two consecutive quarterly earnings, we anticipate a strong 2018 via organic and acquisition growth. IPG has positioned themselves as the complete advertising platform. Their three primary holdings are McCann, MullenLowe and FCB and each is recognized as a leader in the industry. We expect their growth by acquisition to build on their offerings while generating single digit organic growth. We value IPG at $27 based on discount cash flow (WACC 8.25%, 3% growth). The advertising industry s growth has stalled, we expect this trend to change in 2018 and for IPG to be leading the recovery. Catalyst v Cash Flow & Growth: A recent pullback in the stock price due to missing 2 nd and 3 rd quarter earnings have presented an opportunity for the long-term investor. We anticipate a strong 2018 through We believe this pullback is short sighted and IPG is a value at this level. Source: Bloomberg, JWC Research Weekly Chart *Please see disclaimer at the end of this report. Source: Stockcharts.com 2017 JWC Research. All rights reserved. No part of this report may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying or by any information storage and retrieval system, without permission in writing from JWC Research. Page 1 November 29, 2017

2 What is the JWC Confidence Score The JWC Confidence Score is an overweight/underweight scale designed to quickly give our clients key bullish and bearish points based on the JWC Research process - scoring the industry, operations, management team and valuation. The JWC Confidence Score utilizes 100 as a baseline score. The analyst then scores each segment of their analysis, decreasing it for bearish signs and increasing it for bullish signs. The graph shows a recap of this analysis with the company score being an average of the four sections. The JWC Confidence Score is continually monitored and updates are released based on any changes to the JWC Confidence Score. JWC Confidence Score JWC Confidence Score Industry: 100 Bull: Digital Advertising is growing rapidly and is expected to continue to do so. Bear: The Advertising and marketing industry is highly competitive. This is likely to add pricing pressure and lead to eventual industry consolidation. Operations: 110 Bull: IPG generates revenues from internal growth as well as mergers and acquisitions. Their client base and office locations are worldwide and they have specialists in every segment of advertising. Bear: International operations are subject to foreign exchange risk and social, economic and political instability. Management: 110 Bull: Management has done a good job of maintaining their competitive position through the evolution of the digital advertising movement. Bear: Strategic investments and acquisitions are sometimes difficult to execute. With the current focus on expanding in emerging markets, more instability is added to the development plan. Valuation: 120 Bull: The company maintains stable operating margins in a highly competitive industry. Free cash flow valuation leaves the share price with significant upside. Bear: We believe that size is likely to help dominate the industry. IPG is half the size of Omnicom and a quarter the size of WPP. This could add increased pressure to grow organically. The Interpublic Group of Companies, Inc. IPG 110 Bull: As the third largest ad agency and marketing company in the world, their growing client base and geographic diversification are going to help them increase market share and financial position. Bear: IPG had a tough time keeping up their organic growth, especially in the international market. They missed Q2 and Q3 earnings and lower their organic growth guidance for Although we expect this to recover in 2018, it has the potential to weigh on the stock in the short term. Page 2 November 29, 2017

3 Company Description The Interpublic Group of Companies, Inc. (NYSE: IPG) is a global advertising and marketing services company. They specialize in consumer advertising, digital marketing, communications planning and media buying, public relations and specialized communications disciplines. IPG has two reportable segments: Integrated Agency Networks, which include Ad Agencies, Mediabrands (IAN) and Constituency Management Group (CMG) (Figure 3). This provides integrated, large-scale advertising and marketing solutions for clients. Their office locations are in over 100 countries worldwide. Industry Overview Each year, over $500 billion is spent on global advertising. Even though advertising has been around for many years, the landscape is rapidly shifting as the internet increasingly dominates today s advertising (Figure 1). This shift has improved targeting but it also adds a layer of complexity. We believe this presents an opportunity for advertising agencies and media buyers that can successfully navigate their clients in the rapidly evolving world of advertising. Figure 1. Ad Spending Source: Zenith Media Figure 2. Advertising Breakdown Digital Advertising: Over the past five years, internet traffic volume has increased by ~25% each year. As the internet continues to grow and potential customers utilize more devices, advertising will continue to grow and evolve. As a result, revenue for the digital advertising industry is expected to growth north of 10% a year over the next few years. This considers the continued shift of consumers from brick and mortar to online sales, forcing businesses to grow their online presence to remain competitive. Competitive Landscape: Thanks to the emergence of digital advertising the advertising agency industry has received (Figure 2), what we perceive as, a sustained boost to revenue for the next 5 to 7 years. This allows for both organic and acquisition growth. Growth has spurred the emergence of small niche advertising services. We expect the industry to gradually consolidate as the leaders in the industry (Interpublic Group of Companies (IPG) Omnicom Group (OMC) WPP Plc (WPP - London)) strive to boost growth. Despite the fiercely competitive environment, we believe there is enough growth to fuel impressive results across much of the industry. Source: Zenith Media Page 3 November 29, 2017

4 Industry Overview (continued) Wrap-up: We expect this highly competitive industry to grow revenue at a double-digit rate for the next few years. Many of the smaller firms in the industry are focused on the digital advertising portion of the industry and for those that make noise there, we expect many of them to be bought out by larger companies. New technologies and techniques for reaching a more targeted audience will continue to drive the need for businesses to work with advertising agencies and will likely increase the effectiveness of advertising as a whole. A Quick Look at Operations Digital Growth: The advertising spending on digital platforms continue to grow and this shift from traditional media has become a major revenue source for IPG. According to Interactive Advertising Bureau (IAB), for Q1 2017, digital advertising revenues hit $19.6 billion, climbing 23% year-over-year. IPG has several agencies which specialize in digital advertising, such as R/GA, MRM & Huge Inc. Management has realized the importance of growing digital capabilities and have invested heavily in talent and technology. Fast-growth and Strategic Regions: IPG generated a significant amount of revenues overseas and selecting fast-growth and strategic regions is crucial to long-term business development (Figure 4). Through investing and expanding their presence in high-growth and strategic geographic regions in Asia, Europe, Latin America, North America and Russia, IPG has positioned itself to improve organic growth, acquisitions opportunities, and ultimately strengthen their financial position. Emerging markets are expected to lead to attractive longterm global ad market growth. Figure 3. Corporate Structure Source: Company Data, JWC Research Figure 4. Revenue Geography Source: Company Filings, JWC Research Page 4 November 29, 2017

5 A Quick Look at Operations (continued) Diverse Clients Base: IPG s holding company structure allows them to maintain a diverse client base across different sectors worldwide. Their largest client accounted for approximately 4% of revenue for both 2016 and By the end of 2016, the largest client sectors were auto, transportation, healthcare, technology and telecommunications. Among all the sectors, their largest customers include Verizon, Deutsche Telekom, L Oreal, Texas Instrument and Cisco (Figure 5). Healthcare presents a potential upside opportunity because IPG is recognized for its healthcare specialty agents. We expect further growth opportunities as the current expenditures of healthcare in emerging markets continue to expand. Management Our View: In a highly competitive and fragmented industry, management s role in adjusting to the rapid evolving media landscape determines the future of the company. Since 2013, IPG has been through significant leadership changes to broaden its client base and prevent account losses. Now, their goal is to strengthen IPG s financial position by improving margins and maintaining sustainable organic growth. Figure 5. IPG Clients Source: Company Filings Figure 6. Acquisition Record Management has kept the company on an evolutionary path by mergers and acquisitions (Figure 6), and invested strategically in the emerging markets. The current CEO and Chairman of the Board is Michael Roth, who joined leadership in He advocates diversity, inclusion and community impact within the organization, and works together with the entire management team to protect shareholders values. In February 2017, the Board authorized a new share repurchase program to repurchase from time to time up to $300M. Source: Company Filings Page 5 November 29, 2017

6 JWC Valuation Valuation: Our price target of $27 is derived from discounted cash flow (DCF) valuation (Figure 7). We utilize 8.25% WACC and perpetual revenue growth rate of 3%. Management has reiterated their goal of steady organic growth and improving margins. We believe strategically cutting personnel costs, as salaries are their primary expense, and continued increases to revenues from digital and emerging markets, their margin goal is not far out of reach. Capital Structure: The Interpublic Group has a market cap of ~$7.5 billion, and generated $214M free cash flow so far in As of Q2 2017, IPG has $1.29B long-term debt. IPG has $1B available on their credit agreement. We believe the company is reasonably leveraged with sufficient capital and cash flow to meet their long-term business model. Figure 7. JWC Valuation Source: JWC Research Page 6 November 29, 2017

7 Risks Industry Headwinds: On top of short-term cyclical factors, one of the fears that investors have is the advertising spending shift from traditional media to digital platform. IPG is attempting to acquire and grow their way to fill this need. If they struggle to keep up with the changes, their growth is likely to be hurt. Figure 8. Estimates & Key Data Client Concentration: Their top ten accounted for approximately 20% of revenue in 2016, if IPG fails to keep up with the clients accounts (especially large ones) and maintain the relationships, it would affect the financial position of the business. International Operations: The advertising and marketing communication business is highly susceptible to global macroeconomic conditions. Operations outside the United States represent approximately 40% of their revenues in 2016, and the international operations are exposed to greater market volatility. Given IPG s substantial activities in the U.K and Continental Europe, IPG is subject to risks of currency variation and social instability. Source: Bloomberg, JWC Research Page 7 November 29, 2017

8 JWC Rating Systems Buy: The stock s total return is expected to outperform the S&P 500 over the next 12 months. Avoid: The stock s outlook and drivers are too unpredictable. This stock should be avoided. Sell: The stock s total return is expected to materially underperform the S&P 500 over the next 12 months. JWC Research Disclaimer JWC Research is an independent investment research provider and is not a member of the FINRA or the SIPC. JWC Research is not a registered broker dealer and does not have investment banking operations. The JWC Research trademark, service mark and logo are the intellectual property of JWC Research Inc. The information contained in this research report is produced and copyrighted by JWC Research, and any unauthorized use, duplication, redistribution or disclosure is prohibited by law and can result in prosecution. The content of this report may be derived from JWC Research reports, notes, or analyses. The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but JWC Research makes no representation as to their timeliness, accuracy or completeness or for their suitability for any particular purpose. This report is not an offer to sell or a solicitation of an offer to buy any security. The information and material presented in this report are for general information only and do not specifically address individual investment objectives, financial situations or the particular needs of any specific person who may receive this report. Investing in any security or investment strategies discussed may not be suitable for you and it is recommended that you consult an independent investment advisor. Nothing in this report constitutes individual investment, legal or tax advice. JWC Research may issue or may have issued other reports that are inconsistent with or may reach different conclusions than those represented in this report, and all opinions are reflective of judgments made on the original date of publication. JWC Research is under no obligation to ensure that other reports are brought to the attention of any recipient of this report. JWC Research shall accept no liability for any loss arising from the use of this report, nor shall JWC Research treat all recipients of this report as customers simply by virtue of their receipt of this material. Investments involve risk and an investor may incur either profits or losses. Past performance should not be taken as an indication or guarantee of future performance. JWC Research officers, employees, agents and/or affiliates may have positions in stocks discussed in this report. No JWC Research officers, employees, agents and/or affiliates may serve as officers or directors of covered companies, or may own more than one percent of a covered company s stock. Page 8 November 29, 2017