We have downgraded our long-term recommendation on
Lamar Advertising Co.
), a Louisiana-based leading owner and operator of outdoor
advertising structures in the U.S., from Outperform to Neutral. The
downgrade rating is backed by the colossally increasing debt
pressure on the Company's earnings due to its continuous
Though Lamar's efforts in expanding its outdoor advertising
business through acquisitions are encouraging, the resultant
expenses, which continue to grow nearly as fast as revenues, may
adversely affect the company's cash flow and operating margin.
Moreover, these acquisitions either tend to be marginally
profitable or require considerable investments to maximize the
Further, Lamar operates in a highly competitive outdoor
advertising and media market, wherein risks of clients shifting
their accountability to other agencies may result in the loss of
market share, thereby decreasing the company's profit.
The company faces intensified competition from its peers like
Clear Channel Outdoor Holdings Inc.
Focus Media Holding Ltd.
). Hence, in this service-oriented competitive nature of the
advertising and media industry, attracting new clients and offering
the latest products may pose a big challenge for the company. Along
with these, slower-than-expected GDP growth in the US may act as an
impediment to the company's profitability.
However, the gloomy prospects are tempered by expectation of a
growing outdoor advertising industry in 2012 with a rebound in the
Company's performance going forward. Further, the company continues
to emphasize expanding its localized billboard advertising business
through various strategic acquisitions which are expected to
provide an impetus to Lamar's revenue growth.
We are optimistic about the increasing demand for advertising
and media services which would accelerate the Company's sales going
forward. Moreover, the company's investments to improve its
advertising assets will help Lamar capitalize on every possible
The current Zacks Consensus Estimate for earnings per share for
the fiscal year 2012 and 2013 are 17 cents and 61 cents,
representing annual growth of 759.09% and 255.56%, respectively.
Lamar has a Zacks #3 Rank, which translates into a short-term (1-3
months) Hold rating.
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