Here's Why You Should Retain OUTFRONT Media (OUT) Stock Now
OUTFRONT Media OUT is well-poised to benefit from its diversified portfolio of advertising sites, both geographical and industry-wise, in the key markets of the United States and Canada. Moreover, strategic investments and expansion efforts to enhance its digital-billboard portfolio augur well for its long-term growth opportunities. However, competition from other advertising channels and elevated expenses are worrisome for the company. A high interest rate environment adds to its concerns.
What’s Aiding It?
OUTFRONT Media’s advertising sites are geographically diversified, with their presence across the United States and Canada. The company’s large-scale presence paves the way for its clients to reach a national audience and provides the flexibility to tailor campaigns to specific regions or markets. Moreover, its portfolio is diversified industry-wise. The diversification makes its revenues less volatile in nature. We estimate a year-over-year increase of 2.4% and 2.9% in its total revenues for 2023 and 2024, respectively.
OUTFRONT Media has been making strategic investments in its digital billboard portfolio over the years and these investments have started reaping benefits. Its total digital billboard displays reached 2,105 at the end of the third quarter of 2023, increasing from 1,638 at the end of 2021. Moreover, the company’s efforts to convert its business from traditional static billboard advertising to digital displays help in the expansion of the number of new advertising relationships, in turn, providing scope to boost digital revenues. For 2023, we estimate a year-over-year increase of 4.6% in billboard revenues.
To enhance its portfolio, OUTFRONT Media has also capitalized on acquisitions. In the nine months ended Sep 30, 2023, the company acquired assets for around $30.7 million. Moreover, in 2022, it completed acquisitions worth $353.9 million. With such expansion efforts, it remains poised to grow over the long term.
Moreover, given the technological advancements and low-cost nature of out-of-home (OOH) advertising compared with other forms of media, it has been growing at a rapid pace and continues to increase its market share. In the upcoming years, higher technology investments are expected to provide further support to OOH advertising. Therefore, OUTFRONT Media’s efforts to provide a unique technology platform for marketers to tap into growth opportunities bode well.
Over the past three months, shares of this Zacks Rank #3 (Hold) company have gained 20.9% compared with the industry’s growth of 3.9%.
Image Source: Zacks Investment Research
What’s Hurting It?
However, the company faces competition from other outdoor advertisers for customers, display locations and structures. It also competes with other media, including conventional platforms such as television, radio, print media, direct mail marketers and online, mobile & social media platforms. This is likely to weigh on the company’s pricing power in the market, affecting profitability.
Amid the current macroeconomic scenario, OUT is experiencing an increase in expenses. Management expects to continue incurring higher expenses for the remainder of 2023, which is likely to weigh upon the company’s bottom-line growth in the near term. Our estimate for its total operating expenses indicates a year-over-year increase of 7% in the current year.
A high interest rate environment will likely keep borrowing costs elevated for OUTFRONT Media, affecting its ability to purchase or develop real estate. Our estimate for the company’s 2023 net interest expenses indicates a rise of 21.3% year over year. Further, with high interest rates in place, the dividend payout may seem less attractive than the yields on fixed-income and money market accounts.
Stocks to Consider
Some better-ranked stocks from the REIT sector are Lamar Advertising LAMR, EastGroup Properties EGP and Stag Industrial STAG, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Lamar Advertising’s current-year FFO per share has been raised 1.7% over the past two months to $7.31.
The Zacks Consensus Estimate for EastGroup Properties’ 2023 FFO per share has moved marginally north in the past two months to $7.70.
The Zacks Consensus Estimate for Stag Industrial’s ongoing year’s FFO per share has been raised 1.3% upward over the past two 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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