Yahoo Finance Why You Should Retain Lamar Advertising (LAMR) Stock for Now
Lamar Advertising Company’s LAMR impressive footprint of outdoor advertising assets across the United States and Canada positions it well to ride the growth curve. An unmatched logo signs business, a diversified tenant base across various sectors and a focus on local businesses assure stable revenues.
Efforts to expand the digital platform and technological advancements in the low-cost, out-of-home (OOH) advertising platform also bode well for long-term growth. However, expected choppiness in the national business in the near term and a high interest rate environment raise concerns.
What’s Aiding Lamar?
Lamar enjoys a diversified tenant base comprising tenants from the services, health care, restaurants, retailers, automotive, insurance and gaming categories. Apart from this, the company sources a significant part of its revenues from local businesses, with a diversified base of tenants. This generally leads to less volatility in revenues.
In the first quarter of 2024, local and regional sales accounted for 82% of the company’s billboard revenues, up from the fourth quarter’s 78%. Moreover, local and regional sales reported growth for the 12th consecutive quarter.
Over the recent years, LAMR has made efforts to upgrade its portfolio, increasing occupancy in its existing advertising displays and enabling it to enjoy a significant market share in the U.S. outdoor advertising business. The company's increased focus on bolstering its digital capabilities augurs well for long-term growth. Particularly, the growing digital platform allows Lamar to tap into expanding programmatic advertising channels.
It offers customers the largest network of digital billboards in the United States, with around 4,800 displays as of the end of the first quarter of 2024. The company has added a large number of digital screens through acquisitions and internal conversions over the past several years. Lamar’s digital revenues accounted for 29% of its billboard billings in the first quarter.
OOH advertising has been growing at a rapid pace and continues to increase its market share in comparison with other forms of media. Importantly, the cost of advertisement through this medium is also comparatively lower than other media.
Moreover, fragmentation across other advertising media and technological advancements in the OOH segment are aiding the shift to outdoor advertising. In the upcoming years, higher technology investments are expected to provide further support to OOH advertising.
Therefore, the company’s expansion activities over the recent years bode well for long-term growth. Lamar completed 36 acquisitions for a total purchase price of $139 million in 2023. In the first quarter of 2024, the company completed acquisitions for an aggregate purchase price of approximately $18.3 million. With such expansion efforts, it is poised to ride the growth curve.
Solid dividend payouts remain the biggest attraction for REIT investors, and Lamar remains committed to the same. In the last five years, the company has raised its dividend seven times, and its five-year annualized dividend growth rate is 16.50%, which is encouraging. Such efforts raise investors’ optimism in the stock.
Shares of this Zacks Rank #3 (Hold) company have risen 15.9% over the past six months against the industry’s decline of 5.5%. Moreover, the estimate revision trend for 2024 funds from operations (FFO) per share indicates a favorable outlook for this company as it has been revised northward over the past two months. Given the progress on fundamentals and upward estimate revisions, the stock has decent upside potential in the near term.
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What’s Hurting LAMR?
Though local and regional sales grew for the 12th consecutive quarter, the company’s national business declined, falling by 5.5% year over year. Lamar continues to see some larger accounts taking a cautious approach to their ad spend. Hence, management anticipated another decline in the national business in the second quarter of 2024 though maybe a bit better than in the first quarter.
A high interest rate is a concern for Lamar. Elevated rates result in high expenses related to borrowing, which impacts the company's capacity to acquire or expand its real estate holdings. The 7.3% year-over-year surge in interest expenses in the first quarter marred adjusted funds from operations growth.
Given Lamar's substantial debt load, which amounted to $3.40 billion, net of deferred financing costs (including current maturities) as of Mar 31, 2024, we expect interest expenses to remain elevated in the upcoming quarters. Furthermore, the attractiveness of its dividend payouts may diminish compared to the yields offered by fixed-income and money-market accounts.
Stocks to Consider
Some better-ranked stocks from the REIT sector are Americold Realty Trust, Inc. COLD and Innovative Industrial Properties, Inc. IIPR, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Americold’s 2024 FFO per share is pegged at $1.44, which suggests 13.4% year-over-year growth.
The Zacks Consensus Estimate for Innovative Industrial Properties’ 2024 FFO per share of $9.13 indicates a marginal increase year over year.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.
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