Lamar Advertising Company’s LAMR impressive footprint of outdoor advertising assets across the United States and Canada positions it well to ride the growth curve. An unmatched logo sign business, a diversified tenant base across various sectors and a focus on local businesses assure stable revenues.
Also, efforts to expand the digital platform and technological advancements in the low-cost, out-of-home (OOH) advertising platform bode well for long-term growth. However, an expected slowdown in business activity in the near term, stiff competition from other industry players and a high interest rate environment raise concerns for Lamar.
What’s Aiding Lamar?
Lamar enjoys a diversified tenant base comprising tenants from the services, health care, restaurants, retailers, automotive, insurance and gaming categories. Apart from this, the company sources a significant part of its revenues from local businesses, with a diversified base of tenants. This generally leads to less volatility in revenues.
Over the recent years, Lamar 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.
OOH advertising has been growing at a rapid pace and continues to increase its market share in comparison with other forms of media. Importantly, the cost of advertisement through this medium is also comparatively lower than other media.
Moreover, fragmentation across other advertising media and technological advancements in the OOH segment are aiding the shift to outdoor advertising. In the upcoming years, higher technology investments are expected to provide further support to OOH advertising. Therefore, the company’s expansion activities over the recent years bode well for long-term growth. In the nine months ended Sep 30, 2023, Lamar closed several acquisitions for a total of $120.3 million.
Solid dividend payouts remain the biggest attraction for REIT investors, and Lamar remains committed to the same. In the last five years, the company has raised its dividend seven times, and its five-year annualized dividend growth rate is 12.11%, which is encouraging. Such efforts raise investors’ optimism about the stock.
Shares of Lamar Advertising have risen 25.4% over the past three months, outperforming the industry’s growth of 21.4%.
Image Source: Zacks Investment Research
What’s Hurting LAMR?
However, an expected slowdown in business activity in the near term raises concerns for Lamar’s performance. Customers are hesitant to go for renewals and new contracts, and this is likely to limit top-line growth in the current year. Moreover, weak results from the programmatic channel continue to add to the company’s woes.
A high interest rate is a concern for Lamar. Increased rates result in greater expenses related to borrowing, which impacts the company's capacity to acquire or expand its real estate holdings. The significant year-over-year surge in interest expenses in the third quarter marred adjusted funds from operations (AFFO) growth.
Given Lamar's substantial debt load, which amounted to $3.4 billion, net of deferred financing costs (including current maturities) as of Sep 30, 2023, we expect interest expenses to remain elevated in the upcoming quarters. Furthermore, the attractiveness of its dividend payouts may diminish compared to the yields offered by fixed-income and money-market accounts.
Stocks to Consider
Some better-ranked stocks from the REIT sector are Host Hotels & Resorts, Inc. HST and STAG Industrial, Inc. STAG, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Host Hotels & Resorts’ 2023 funds from operations (FFO) per share has moved 1.1% northward over the past two months to $1.92.
The Zacks Consensus Estimate for STAG Industrial’s 2023 FFO per share has moved marginally upward in the past three months to $2.28.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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