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On Nov 8, we upgraded Lamar Advertising Co. (LAMR - Analyst Report) to Outperform based on its solid third quarter 2013 results announced on Nov 6.

Why the Upgrade?

Lamar Advertising isone of the largest owners and operators of outdoor advertising structures in the U.S. For third-quarter 2013, the company beat the Zacks Consensus Estimate on both the earnings and revenues front.  Earnings came in at 19 cents per share, 5.5% above the Zacks Consensus Estimate of 18 cents. The reported figure was 46% higher than the prior-year quarter. Net revenue for the reported quarter increased 5.5% year over year to $323.2 million.            

Lamar has expanded its localized billboard advertising businesses through a combination of organic growth and strategic acquisitions. The outdoor advertising industry is growing on a secular basis as consumers spend most of their time away from home. Fragmentation across other advertising media and technological advancements in the outdoor segment are aiding the shift to outdoor advertising. In order to tap these markets, the company has acquired various outdoor advertising assets to increase the number of outdoor advertising displays in existing and new markets. These initiatives are likely to benefit the company in the long run

Apart from the above reasons, Lamar’s expected conversion to a real estate investment trust (REIT) status is expected to boost its adjusted funds from operations (AFFO) for 2014.

REITs are required to pay out at least 90% of taxable income annually to shareholders as dividends, resulting in reduced tax burden and a boost in cash flow. This is likely to benefit the company’s bottom line. Moreover, the REIT status will also augment shareholders’ wealth in the form of increased dividend payments.

Other Stocks to Consider

Lamar Advertising has a Zacks Rank #3 (Hold). Other players in the industry worth considering include WPP plc (WPPGY - Analyst Report), Publicis Groupe SA (PUBGY) and Clear Channel Outdoor Holdings Inc. (CCO - Snapshot Report). All of these carry a Zacks Rank #2 (Buy).

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