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What Makes Lamar Advertising (LAMR) a Solid Portfolio Pick?

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Shares of Lamar Advertising (LAMR - Free Report) have risen 14.6% over the past three months compared with the industry’s growth of 1.9%.

The impressive footprint of outdoor advertising assets, the unmatched logo sign business, a diversified tenant base across various sectors and a focus on local businesses are tailwinds for Lamar.

Moreover, the estimate revision trend for 2024 funds from operations (FFO) per share indicates a favorable outlook for this Zacks Rank #2 (Buy) company as it has been revised 3.7% northward over the past month.

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Let’s Delve Deeper

Impressive Footprint & Diversified Tenant Base: The company enjoys an impressive national footprint and holds a leading position as a provider of logo signs in the United States. It enjoys a diversified tenant base, comprising tenants from the services, health care, restaurants, retailers, automotive, insurance and gaming categories.

Lamar also 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.

Bolstering Digital Capabilities: Over the recent years, the company has made concerted 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.

Lamar 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.

Expansionary Efforts: Out-of-home (OOH) advertising has been growing at a rapid pace and continues to increase the company’s market share in comparison with other forms of media. The cost of advertisement through this medium is lower than other media. Also, fragmentation across other advertising media and technological advancements in the OOH segment are aiding the shift to outdoor advertising.

In this environment, Lamar’s expansion activities over the recent years bode well for long-term growth. In 2021, Lamar completed acquisitions for a total cash purchase price of around $312.3 million. Further, in 2022, the company completed 73 acquisitions of outdoor advertising assets for $479.8 million. Following two active years on the M&A front, volumes in its acquisition pipeline have moderated.

However, 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.

Cash Flow Strength & ROE: Lamar has enjoyed historical cash flow growth of 8.25% compared with 2.30% of the industry. As of Mar 31, 2024, Lamar Advertising had a total liquidity of $634.8 million. Moreover, this REIT’s trailing 12-month return on equity (ROE) highlights its growth potential. Lamar’s ROE is 41.86% compared with the industry’s average of 3.14%. This reflects that the company reinvests more efficiently compared with the industry.

Dividend Payout: Solid dividend payouts remain the biggest attraction for REIT investors, and Lamar has been committed to the same. In February 2024, the firm increased its quarterly dividend payment on its Class A common stock and Class B common stock to $1.30 per share from $1.25 paid out earlier, denoting a 4% hike.

In the last five years, the company has raised its dividend seven times. Its five-year annualized dividend growth rate is 14.39%, which is encouraging. Such efforts raise investors’ optimism about the stock.

Other Stocks to Consider

Some other top-ranked stocks from the REIT sector are Iron Mountain (IRM - Free Report) and SL Green Realty Corp. (SLG - Free Report) , each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for IRM’s 2024 FFO per share is pegged at $4.42, which suggests year-over-year growth of 7.3%.    

The Zacks Consensus Estimate for SLG’s 2024 FFO per share stands at $7.33, which indicates an increase of 48.4% from the year-ago period’s actual.

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

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