On Dec 2, we downgraded our long-term recommendation for
outdoor advertising services provider
Lamar Advertising Co.
) from Outperform to Neutral. The company's expansion through a
combination of organic growth and strategic acquisitions augur
well for its growth prospects. However, increased capital
expenditures and higher expenses related to the acquired outdoor
advertising assets could weigh on the margins moving forward.
CHANNELADVISOR (ECOM): Free Stock Analysis
LAMAR ADVER CO (LAMR): Free Stock Analysis
PUBLICIS GP-ADR (PUBGY): Get Free Report
YUME INC (YUME): Free Stock Analysis Report
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Why the Downgrade?
An integral part of Lamar's growth strategy is hinged upon
continuous acquisition of outdoor advertising assets. However, in
the regulated outdoor advertising industry, acquisitions either
tend to be marginally profitable or require considerable
investments for maximization of profitability.
In addition, although the company enjoys a significant market
share in many of its small and medium-sized markets, it also
faces competition from other outdoor advertisers and other forms
of media in all its markets. Lamar competes against larger
companies with diversified operations such as television, radio
and other broadcasting media. These diversified competitors have
the advantage of cross-selling complementary advertising products
to the advertisers, which further reduces its profitability.
As management takes measures to boost the company's top-line
growth through acquisitions, increased debt associated with these
acquisitions may put further pressure on earnings. Lamar had a
long-term debt of approximately $1.7 billion exiting the third
quarter of 2013. Despite the high level of debt outstanding, the
terms of the indentures governing Lamar Media's notes and the
terms of the senior credit facility allow it to incur
substantially more debt. This undermines the growth potential of
the company to some extent.
However, Lamar has achieved success in increasing occupancy of
its existing advertising displays, raising advertising rates and
acquiring new advertising displays. The company's internal and
external investment activities have allowed it to capture a
considerable share of localized outdoor advertising markets.
Given the company's large and growing national presence, there is
additional upside going forward, as it builds national presence
and expands relationships with larger advertisers.
Lamar's billboard advertising business is also well diversified,
with a major share of its revenue coming from restaurants,
retailers, hospitals and health care advertisements. The company
also has a large and growing presence in the transit-related
advertising market. These augur well for its long-term growth
Other Stocks to Consider
Lamar has a Zacks Rank #3 (Hold). Other players in the industry
worth considering include
Publicis Groupe SA
), each carrying a Zacks Rank #2 (Buy).