Analytic Outlook Merrill Lynch thinks investors can count on the publicly owned ad agencies to generate double-digit growth in earnings per share for quite some time. Though advertising is cyclical and has a long-term growth rate in the single digits, the big agencies can beat that, concludes a recent analysis. The report cites several reasons, including the larger companies’ abilities to win business from old and new clients, as well as acquiring advertising and related-service companies. The Internet is cited as an emerging market, where a new supply of advertising opportunities will create new demand (and more revenue for agencies). Many of the companies will also benefit from increased activity in the developing nations of Latin America, Asia and Africa. Given the bright outlook, all of the major ad stocks covered by Merrill Lynch receive favorable investment ratings. Pick of the crop? WPP Group. Based on the analyst’s estimate, WPP shares are trading below 20 times 1998’s earnings per share, while Omnicom and Interpublic, the closest comparable companies, command price/earnings ratios in the mid-to-high 20s. The analytic conclusion: The gap is more likely to close by WPP rising than by the rest of the group going down. -Alan Gottesman (westendal pobox.com) is principal of West End Consulting. THE GOTTESMAN FILE The big ad companies are receiving favorable ratings on Wall Street. ….. ….. Recent share price ….. Earnings estimate ….. Price/earnings ratio ….. CKS Group ….. 18.38 ….. $0.74 ….. 24.8 ….. Cordiant ….. 8.63 ….. $0.34 ….. 25.4 ….. Interpublic ….. 55.06 ….. $2.15 ….. 25.6 ….. Omnicom ….. 44.88 ….. $1.57 ….. 28.6 ….. Saatchi & Saatchi ….. 9.00 ….. $0.58 ….. 15.6 ….. True North ….. 24.38 ….. $1.30 ….. 18.8 ….. WPP Group ….. 53.94 ….. $2.82 ….. 19.1 ….. Source: Merrill Lynch. Prices as of 2/25/98; estimates as of 2/20/98