Lamar Advertising Company ( LAMR Quick Quote LAMR - Free Report) enjoys an impressive national footprint and holds a leading position as a provider of logo signs in the United States. Further, a diversified tenant base across various sectors bodes well for the company. However, a dent in advertising revenues and a high level of debt are major concerns.
The company’s inorganic growth looks impressive. Expansion activities in recent years act as tailwinds. Though in light of the pandemic, the company had restricted acquisition activities as a means to conserve liquidity in 2020, it resumed strategic acquisitions during 2021. Particularly, during first-quarter 2021, Lamar completed acquisitions for a total cash purchase price of $3.3 million. Though there was only modest investment activity in the first quarter, management noted that the acquisition pipeline has seen an uptick in potential opportunities in the last several weeks and continues to anticipate that 2021 will emerge as an active year.
In addition, Lamar enjoys significant market share in the U.S. outdoor advertising business and has made substantial efforts to upgrade the company’s assets in recent years, boosting occupancy in its existing advertising displays. Its increased focus on bolstering digital capabilities augurs well for long-term growth. Notably, the company offers more than 3,600 digital displays.
Lamar operates in an industry that is characterized by high barriers to entry due to permitting restrictions. This is because the company particularly owns permits which allow out-of-home advertising at each location and in fact, these permits are the most prized assets gained in an acquisition. However, with control on the permits, inventory as well as the intrusion from both local and national market is restricted, providing the company with a solid competitive edge.
Also, shares of this Zacks Rank #3 (Hold) company have appreciated 32.2% in the past six months outperforming the 20.3% gain recorded by the
industry. You can see . the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here Image Source: Zacks Investment Research
However, as outdoor travel has taken a hit due to the coronavirus pandemic, demand for Lamar’s services has been affected. There has been a reduction in advertising revenues. Though the situation is improving gradually and the company’s performance in recent months reflects acceleration in both local and national sales activities, any robust growth will likely remain elusive till normal activities resume.
Also, the company’s high debt level is worrisome. Lamar’s total debt to total capital is high. The company ended the first quarter with total leverage of four times net debt to EBITDA, as defined under its credit facility. Moreover, the pandemic-induced slowdown might continue hurting revenue growth and cash flow from operations.
Further, the Zacks Consensus Estimate for funds from operations (FFO) per share remained unchanged at $6.55 for 2021, in the past month. Therefore, given the above-mentioned concerns and lack of upward estimate revisions, there is a limited upside potential to the stock.
Key Industry Picks
A few better-ranked REIT stocks are mentioned below:
OUTFRONT Media Inc.’s ( OUT Quick Quote OUT - Free Report) Zacks Consensus Estimate for the ongoing-year FFO per share moved 3.6% upward in the past two months. The stock currently carries a Zacks Rank of 2 (Buy). One Liberty Properties, Inc.’s ( OLP Quick Quote OLP - Free Report) FFO per share estimate for 2021 moved up 19.3% in the past two months. The stock currently carries a Zacks Rank of 2. Geo Group Inc The’s ( GEO Quick Quote GEO - Free Report) Zacks Consensus Estimate for the current year’s FFO per share moved 10.1% north in two months’ time. The stock currently carries a Zacks Rank of 2.
Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs. Bitcoin, Like the Internet Itself, Could Change Everything
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