Key insights
- Goldman Sachs initiated WPP with a 'Sell' rating, citing concerns over returning to organic growth and weak free cash flow projections. Despite potential asset disposals, cost savings are expected to be offset by inflation and incentives, leading to stable but lower FCF. This negative outlook on a major advertising player could signal broader headwinds in the sector, potentially impacting related companies and investor sentiment towards consumer discretionary spending.
Investing.com - Goldman Sachs initiated coverage on WPP Plc (NYSE:WPP) with a Sell rating and set a price target of GBP 2.40, implying approximately 14% downside.
Goldman Sachs analyst Adam Berlin said the firm believes it may be challenging for WPP to return to organic growth in the near term without a reshaping of its portfolio. The stock currently trades at $18.82, down 53% from its 52-week high of $39.74, though InvestingPro analysis suggests the company remains undervalued at current levels. The firm noted that while asset disposals could represent an upside lever, they would also remove associated earnings contribution, with the net EPS impact likely to depend on the valuation realized.
Goldman Sachs expects free cash flow to remain weak, with GBP 500 million of cost savings mostly offset by higher employee incentives, investment and salary inflation. The firm sees unlevered free cash flow remaining broadly stable between 2025 and 2028.
Goldman Sachs forecast GBP 684 million of free cash flow in 2028 compared with more than GBP 1,000 million in 2022 and 2023. Notably, InvestingPro Tips highlight that WPP’s valuation implies a strong free cash flow yield, with 8 additional exclusive tips available to subscribers. Visible Alpha Consensus Data shows GBP 710 million for 2028.
The firm said this implies WPP trades on a 2028 unlevered free cash flow yield of 9% before any negative working capital movements.
In other recent news, WPP PLC reported a challenging first quarter of 2026, with significant declines in revenue across various segments. The revenue performance, however, was in line with management expectations, showing a mild sequential improvement from the previous quarter’s double-digit declines. Despite the revenue challenges, Rothschild Redburn initiated coverage on WPP with a Buy rating and a price target of GBP4.35, highlighting the company’s ongoing simplification efforts. The restructuring program is now in its eighth year and is the third major reorganization under CEO Cindy Rose OBE. The firm noted that Rose is following a similar strategy to her predecessors but benefits from the groundwork already completed. These developments indicate that the company’s efforts to streamline operations are being recognized by analysts.
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