Lamar Still Rated Neutral

We currently maintain a Neutral recommendation on Lamar Advertising Company (LAMR - Analyst Report), a Louisiana-based leading owner and operator of outdoor advertising structures in the U.S.

Lamar recently came out with its second quarter 2011 results and reported earnings per share of 12 cents, above the Zacks Consensus Estimate of 8 cents and an improvement over a 10 cent loss reported in the year-ago comparable quarter.

Top line grew 2.4% year over year to $293 million but failed to meet the company's guidance of $296 million. Organic revenue growth was 2.1% in the quarter as compared with 3% projected by management.

Lamar has developed its localized billboard advertising businesses through a combination of organic growth and strategic acquisitions. Moreover, its internal and external investment activities have allowed it to capture a considerable share of localized outdoor advertising markets.

In the second quarter of 2011, the company invested about 78.5% of its capital spending to upgrade its billboards business, while the rest was spent on logo, transit, land and buildings along with operating equipment businesses.

We expect additional upsides going forward, as the company builds its national sales presence and establishes relationships with larger and national advertisers.

The positive factors notwithstanding, a company like Lamar is fraught with difficulties. To many small and mid-sized businesses obtaining loans, higher payroll and site lease expenses can be quite challenging, which ultimately affect Lamar's businesses. Moreover, short-term free cash flow is being pressured by enhanced capital expenditures and intensifying competition from peers like Clear Channel Outdoor Holdings Inc. (CCO - Snapshot Report) keep us on the sidelines.

The current Zacks Consensus Estimate for earnings per share for the third quarter of 2011 is 8 cents per share, which reflects a year-over-year growth of 740%. Estimates for the fiscal year 2011 and 2012 are 5 cents and 20 cents, representing annual growth of 120.73% and 277.19%, respectively.