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Here's Why Lamar Advertising (LAMR) is an Apt Portfolio Pick

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Lamar Advertising (LAMR - Free Report) is one of the largest owners and operators of outdoor advertising structures in the United States. It offers its customers the largest network of digital billboards in the United States, with more than 4,300 displays as of the September-quarter end.

The company has an impressive footprint of outdoor advertising assets across the United States and Canada. Also, its diversified tenant base across various sectors and focus on local businesses position it well for growth.

Analysts, too, seem bullish about this Zacks Rank #2 (Buy) company. The Zacks Consensus Estimate for the company’s 2022 funds from operations (FFO) per share has moved 1.4% upward over the past two months, indicating a favorable outlook for LAMR.

Shares of Lamar have gained 13.3% in the quarter-to-date period compared with its industry’s growth of 4.5%.

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What Makes Lamar Advertising a Solid Pick?

Healthy Operating Performance: The continued sales momentum across Lamar’s billboard, logo, transit and airport businesses aided its third-quarter 2022 performance. Particularly, categories like services, education, restaurants, auto and amusements, and entertainment portrayed strength in the third quarter.

The acquisition-adjusted net revenues climbed 6% year over year, while the acquisition-adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased 5.7% in third-quarter 2022. Free cash flow of $176 million increased 1.3% year over year in the quarter.

The rates on its large-format traditional bulletins increased almost 8% in the third quarter after witnessing growth of more than 9% in the first half of 2022. In addition, the occupancy of its outdoor portfolio remains at a historic high.

With the United States advertising market witnessing a solid recovery post-pandemic, the company is well-positioned to grow.

Strategic Acquisitions: Given the technological advancements and low-cost nature of out-of-home (OOH) advertising, it has been gaining traction in recent years. Therefore, Lamar’s strategic acquisitions of outdoor advertising assets in its existing and new markets are likely to pay off well.

In the nine months ended Sep 30, 2022, the company completed more than 50 acquisitions of outdoor advertising assets for $287.8 million.

Balance Sheet & Cash Flow Strength: On the balance-sheet front, Lamar had $857.3 million in liquidity as of Sep 30, 2022. As of the same date, there were no borrowings outstanding under its revolving credit facility. Its well-laddered debt maturity profile and low leverage compared with its industry poise it well to capitalize on long-term growth opportunities.

In addition, the company’s trailing 12-month return on equity (ROE) is 40.03% compared with the industry’s average of 4.65%. This reflects that the company is more efficient in using shareholders’ funds than its peers.

Its projected current cash flow growth is 32.90% compared with 9.70% growth estimated for the industry.

FFO Growth: The Zacks Consensus Estimate for the 2022 FFO per share indicates a rise of 11.38% for 2022 compared with the industry’s average of 9.92%.

Moreover, per management, the company is well on track to achieve the top end of its earlier-provided range for the full-year AFFO per share. In its first-quarter earnings release, LAMR updated its guidance issued in February 2022 and projected the AFFO per share to lie between $7.20 and $7.35.

Dividends: Solid dividend payouts remain the biggest attraction for REIT investors, and LAMR has remained committed to the same. The company has been consistent in paying its dividends. It rewards its investors with dividend hikes from time to time. In May 2022, it increased its quarterly dividend payment on its Class A common stock and Class B common stock from $1.10 per share paid out in March 2022 to $1.20, marking a hike of 9.1%. Such efforts boost investors’ confidence in the stock.

Nonetheless, stiff competition from other outdoor advertisers and other forms of media is a key concern for Lamar. Also, a hike in interest rates could act as a deterrent for the company.

Other Stocks to Consider

Some other top-ranked stocks from the REIT sector are VICI Properties (VICI - Free Report) , Equity Commonwealth (EQC - Free Report) and Chatham Lodging Trust REIT (CLDT - Free Report) .

The Zacks Consensus Estimate for VICI Properties’ current-year FFO per share is pegged at $1.92. VICI carries a Zacks Rank #2 at present.

The Zacks Consensus Estimate for Equity Commonwealth’s ongoing year’s FFO per share is pegged at 33 cents. EQC currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Chatham Lodging Trust’s FFO per share is pegged at $1.17. CLDT currently carries a Zacks Rank of 2.

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

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