AI And Automation Will Revolutionize Cross-Channel Marketing Operations

Key Takeaways

• AI-driven automation and integrated marketing solutions are enhancing campaign effectiveness, client value, and operational efficiency, which should drive margin expansion and improved earnings quality.
  
• Diversification into resilient marketing segments and proactive industry collaboration are stabilizing revenues, reducing cyclicality, and offsetting declines in traditional print services.
  
• Ongoing decline in legacy print, rising costs, high client concentration, slow diversification, and significant debt all threaten financial stability and revenue recovery.

Catalysts

Provides marketing solutions in North America, Mexico, Central America, the Caribbean, Europe, the Middle East, Africa, South America, and Asia.

• Quad/Graphics' investment in AI-driven data analytics and automation, exemplified by Audience Builder 2.0 and plans to embed generative AI, is improving speed, precision, and accessibility of audience targeting and campaign management for clients-likely leading to higher-margin, data-driven marketing solutions and improved earnings quality over time.
  
• The expanding demand for integrated marketing solutions, including cross-channel campaign execution (digital, print, in-store), positions Quad/Graphics to win new business and cross-sell services as clients seek end-to-end partners-which is expected to stabilize and eventually grow revenues despite ongoing legacy print declines.
  
• Continued diversification into resilient segments such as packaging, direct mail, and in-store marketing (with targeted print sales up 7% and in-store up 13% year-to-date) supports revenue resiliency and reduces earnings cyclicality as these categories benefit from e-commerce trends and evolving retail environments.
  
• Quad/Graphics' operational efficiency push-via automation, AI-powered process optimization, and cost-reduction-should enable margin expansion and operating leverage, positively impacting net margins and free cash flow over the next several years.
  
• Postal pricing relief initiatives, possible rate caps, and continued industry collaboration with the USPS provide a catalyst for volume stabilization in mail-driven marketing, mitigating cost headwinds for customers and supporting Quad/Graphics' targeted print revenue base.

Quad/Graphics Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Quad/Graphics's revenue will decrease by 5.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.6% today to 8.7% in 3 years time.
• Analysts expect earnings to reach $191.0 million (and earnings per share of $3.88) by about August 2028, up from $-14.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 2.9x on those 2028 earnings, up from -22.8x today. This future PE is lower than the current PE for the US Commercial Services industry at 30.7x.
• Analysts expect the number of shares outstanding to decline by 3.24% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.76%, as per the Simply Wall St company report.

Quad/Graphics Future Earnings Per Share Growth

Risks

• Persistent secular decline in large-scale print product lines (e.g., magazines, retail inserts) continues to drive overall net sales declines, with management explicitly guiding for sales contraction through at least 2025 and only expecting a potential inflection to growth by 2028-sustained revenue erosion in legacy print remains a material drag on total company growth.
  
• Rising postal rates, which have increased by 50–70% since 2021 (with another 11% hike recently implemented), continue to pressure demand for direct mail and print marketing products. Postal regulatory reforms, while possible, are uncertain in both scope and timing, and ongoing cost increases may accelerate print volume declines, directly impacting revenues and margins.
  
• Quad/Graphics' financial performance is highly dependent on a small number of large clients, with the recent loss of a major grocery account (3% of annual revenue) highlighting concentration risk and contributing to short-term revenue and earnings volatility.
  
• The company's shift toward integrated marketing and data-driven solutions faces strong competition, and the slow pace of diversification means Quad is still heavily reliant on a structurally challenged print segment; therefore, full stabilization of revenues and margins may take longer than planned or may underwhelm expectations.
  
• Although Quad has made progress in deleveraging, it continues to carry significant debt ($193 million maturing in 2029, with a blended interest rate of 7.2%), and further industry contraction or underperformance could pressure cash flows, restrict financial flexibility, and weigh on net income due to elevated interest expenses.

Valuation

• The analysts have a consensus price target of $9.3 for Quad/Graphics based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.2 billion, earnings will come to $191.0 million, and it would be trading on a PE ratio of 2.9x, assuming you use a discount rate of 9.8%.
• Given the current share price of $6.45, the analyst price target of $9.3 is 30.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.