Don't Sell Outfront Media (OUT) Stock Now -- Here's Why

Outfront Media’s OUT efforts to upgrade its portfolio to digital billboards have been boosting the company’s performance and are anticipated to drive growth over the long term. While revenues from local advertising are decent, prevalent softness in the national advertising markets continues to impede Outfront’s growth.

In fact, Outfront is adhering to an organic growth strategy that involves increased investments in digital-billboards displays in high traffic areas. Also, the company is putting in concerted efforts to convert its business from traditional static-billboard advertising to digital displays. In fact, during third-quarter 2017, Outfront had built or converted 16 digital boards in the United States and six in Canada.

Focus on digital displays has also enabled the company to register impressive top-line growth. While it had 392 digital billboards generating annual revenues of $73 million in 2013, on a 12-month trailing basis, through third-quarter 2017, the company had 959 boards generating $168 million in revenues. This reflects compound annual growth rate in revenues of 25%. Such top-line growth is encouraging.    

On Sep 27, 2017, Outfront was awarded advertising and communications concession agreements for commuter rail and buses, subway and billboards by the New York Metropolitan Transportation Authority (MTA) for 15 years. Per the contract, Outfront will deploy around 50,000 digital displays across the transit system over the upcoming years. This partnership will enable the expansion of Outfront Media’s ON Smart Media platform.

However, Outfront’s performance has been marred by weakness in the national advertising market. In the recently-reported quarter, the company’s automotive and financial categories were affected. This sluggish environment is expected to stretch into the upcoming quarters as well, limiting revenue growth for the company.

In addition to the above, the out-of-home (“OOH”) advertising industry has to comply with regulations at the international, federal, state and local levels. These regulations, which may change frequently, have a deep impact on the outdoor advertising industry and Outfront’s business.

Shares of this Zacks Rank #3 (Hold) company have underperformed its industry so far this year. During this time frame, shares of the company have declined 6.2%, whereas the industry has registered growth of 6.1%. Also, the Zacks Consensus Estimate for FFO per share for fourth-quarter 2017 has been revised 5.1% downward in a month’s time.

Better-ranked stocks in the real estate investment trust space include Franklin Street Properties FSP, Columbia Property Trust CXP and MedEquities Realty Trust MRT. All three carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Franklin Street Properties’ funds from operations (FFO) per share estimates for 2017 remained unchanged at $1.05 over the past month. Its share price has increased 5.7% in three months’ time.

Columbia Property Trust’s FFO per share estimates for the current year have moved up to $1.15 in a month’s time. Over the past three months, the company’s shares have gained 4.7%.

MedEquities Realty‘s 2017 FFO per share estimates remained unchanged at $1.12 over the past month. Its shares have dropped 6.2% in the past three months.

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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