Lamar Advertising Company’s efforts to enhance its portfolio through strategic acquisitions bode well for the company’s growth. However, dreary market conditions continue to plague its bottom line.
Notably, Lamar holds significant market share in the U.S. outdoor advertising business. It is now focused on expanding its business and fortifying the company’s position by revamping its portfolio. The company has been upgrading its portfolio by adding high-quality assets. This will help Lamar increase occupancy in its existing advertising displays and raise advertising rates.
Recently, Lamar announced an all-cash acquisition of the assets of Steen Outdoor Advertising, for an undisclosed amount. The buyout includes around 460 billboard faces, of which 23 are digital bulletin faces. These are predominately located in Philadelphia, western New Jersey, Delaware and suburbs of Pennsylvania. This move will expand Lamar’s footprint in and around Philadelphia, as well as fortify the company’s media presence in the Northeast.
Moreover, the permits gained by Lamar from an acquisition are its trophy assets. This is because these permits allow out-of-home advertising at each location. Since there is a control on the permits, inventory as well as intrusion from other market players are restricted. This provides the company with a solid competitive edge.
The strengthening outdoor advertising industry is anticipated to support the company’s growth, going forward.
Continuous acquisitions of outdoor advertising assets play a crucial role in the company’s performance. As such, increased capital expenditures and elevated expenses related to the acquired assets will likely reduce free cash flow and strain Lamar’s margins. This, in turn, is expected to mar its financial performance.
In addition, Lamar’s performance in second-quarter 2017 was adversely affected by the lackluster national advertising market. Particularly, the automotive and gaming categories were affected. The market is likely to remain choppy in the near term as well amid the challenging macro environment for advertisement spending. This is expected to take a toll on the company’s profits.
Also, Lamar has underperformed its industry year to date. Shares of this Zacks Rank #3 (Hold) company have lost 5.9% during this time frame, as against 6.7% growth recorded by the industry. Additionally, the Zacks Consensus Estimate for funds from operations (FFO) per share for third-quarter 2017 moved 4.2% downward to $1.36, while the 2017 FFO estimate fell 2.7% to $4.96 over the past 60 days.
Better-ranked stocks in the REIT space include Seritage Growth Properties (SRG - Free Report) , Getty Realty Corporation (GTY - Free Report) and Communications Sales & Leasing, Inc. (UNIT - Free Report) . While Seritage and Getty Realty flaunt a Zacks Rank #1 (Strong Buy), Communications Sales & Leasing carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Over the last 60 days, Seritage’s FFO per share estimates for full-year 2017 inched up 0.5% to $2.01.
Getty Realty’s FFO per share estimates for the current year moved 3.1% upward to $2 over the past week.
Communications Sales & Leasing’s 2017 FFO per share estimates climbed 14.4% to $2.54 in the last 60 days.
Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
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