Is It Prudent To Hold On To Lamar Advertising (LAMR) Now?

Lamar Advertising Company’s (NASDAQ:LAMR) efforts to upgrade its traditional static billboards to digital ones will likely support its growth over the long run. However, such growth initiatives require huge capital outlays, which might strain growth in free cash flow and margins.

In fourth-quarter 2019, Lamar Advertising reported adjusted FFO per share of $1.64, up 10.8% from the prior-year quarter’s $1.48. Net revenues for the quarter were $462.7 million, marking an 8.1% increase from the prior-year quarter.

The year-over-year improvement reflects healthy top-line growth, highlighting an increase in national/programmatic revenues and same-unit digital revenues.

Notably, Lamar Advertising enjoys an impressive national footprint and holds a leading position as a provider of logo signs in the United States. The company enjoys a diversified tenant base, comprising restaurants, services, retailers and healthcare companies. Apart from this, it sources a significant part of its revenues from local businesses, with a diversified base of tenants.

Additionally, fragmentation in the advertising media industry and technological advancements in the outdoor segment are supporting the company’s shift to outdoor advertising. In fact, digitalization, acquisitions and media market share shift are multiple growth drivers for Lamar Advertising.

The company ended 2019 with 3,542 digital faces in the air, reflecting an increase of roughly 335 faces for the year. Notably, 205 of those were new-builds and 130 were by acquisition. In 2020, the company intends to accelerate its efforts in new-build activity and aims for 250 new-build units. Such efforts augur well for its long-term growth.

Robust balance-sheet strength and liquidity position enable the company to pursue the opportunities. In fact, as of Dec 31, 2019, it had $413.5 million of liquidity. In February, in an effort to strengthen the balance sheet, Lamar Advertising announced the completion of $2.35 billion in refinancing transactions through its wholly-owned subsidiary, Lamar Media Corp. The efforts aided in lowering Lamar Media’s cost of debt, extend its debt maturities, boost its liquidity and free cash flow, and reduce its exposure to floating interest rates.

Over the past 12 months, shares of Lamar Advertising, with a Zacks Rank #4 (Sell), have dipped 27.9% compared with the industry's decline of 15%. However, the Zacks Consensus Estimate for the current year has been raised 1.6% in the past 30 days.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

However, continued acquisitions of outdoor advertising assets and portfolio upgradation have been escalating capital expenditure, which could dent free cash flows and affect margins. This might hamper Lamar Advertising’s financial performance.

Further, the company faces stiff competition from national players. Specifically, it competes with peers with diversified operations such as television, radio and other media, which have an advantage of cross-selling complementary advertising products to advertisers. This is expected to impair Lamar Advertising’s growth momentum.

Stocks to Consider

Boston Properties, Inc. (NYSE:BXP) currently carries a Zacks Rank of 2 (Buy). The Zacks Consensus Estimate for the ongoing year’s FFO per share has climbed 0.5% to $7.57 in the past two months.

Highwoods Properties, Inc. (NYSE:HIW) carries a Zacks Rank of 2 at present. The company’s FFO per share estimate for 2020 has moved 0.3% north to $3.64 over the past month.

Piedmont Office Realty Trust, Inc. (NYSE:PDM) currently carries a Zacks Rank of 2. The company’s FFO per share estimate for the current year has moved up 3.2% to $1.96 over the past two months.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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