Is It Wise to Add Lamar (LAMR) Stock to Your Portfolio Now?
Shares of Lamar Advertising LAMR have risen 19.1% over the past three months, outperforming the industry’s growth of 4.6%.
The impressive footprint of outdoor advertising assets, the unmatched logo sign business, a diversified tenant base across various sectors and a focus on local businesses are tailwinds for Lamar.
Moreover, the estimate revision trend for 2023 funds from operations (FFO) per share indicates a favorable outlook for this Zacks Rank #2 (Buy) company as it has been revised 1.7% northward over the past two months.
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What Makes Lamar Advertising a Solid Pick?
Impressive Footprint & Diversified Tenant Base: Lamar enjoys an impressive national footprint and holds a leading position as a provider of logo signs in the United States. The company enjoys a diversified tenant base comprising tenants from the services, health care, restaurants, retailers, automotive, insurance and gaming categories. Lamar also sources a significant part of its revenues from local businesses with a diversified base of tenants. This generally leads to less volatility in revenues.
In the third quarter of 2023, local and regional sales accounted for 77% of the company’s billboard revenues. Moreover, local and regional sales reported growth for the 10th consecutive quarter, increasing 2.3%.
Bolstering Digital Capabilities: Over the recent years, the company 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.
Lamar offers customers the largest network of digital billboards in the United States, with around 4,700 displays as of the end of the third quarter of 2023. The company is on track to meet its target of approximately 300 organic conversions this year. Lamar’s digital revenues accounted for 30% of its billboard revenues in the third quarter.
Expansionary Efforts: Out-of-home (OOH) advertising has been growing at a rapid pace and continues to increase its market share in comparison with other forms of media. The cost of advertisement through this medium is comparatively lower than other media. Also, fragmentation across other advertising media and technological advancements in the OOH segment are aiding the shift to outdoor advertising.
In this environment, Lamar’s expansion activities over the recent years bode well for long-term growth. In 2021, Lamar completed acquisitions for a total cash purchase price of around $312.3 million. Further, in 2022, the company completed 73 acquisitions of outdoor advertising assets for $479.8 million. Following two active years on the M&A front, volumes in its acquisition pipeline have moderated. However, in the nine months ended Sep 30, 2023, Lamar closed several acquisitions for a total of $120.3 million.
Cash Flow Strength & ROE: Lamar has enjoyed historical cash flow growth of 8.27% compared with 4.93% of the industry. Moreover, its current cash flow growth is projected at 19.39%, well ahead of the 8.02% growth projected for the industry.
Moreover, this REIT’s trailing 12-month return on equity (“ROE”) highlights its growth potential. Lamar’s ROE is 35.03% compared with the industry’s average of 3.08%. This reflects that the company reinvests more efficiently compared with the industry.
Dividend Payout: Solid dividend payouts remain the biggest attraction for REIT investors, and Lamar remains committed to the same. In February 2023, the firm increased its quarterly dividend payment on its Class A common stock and Class B common stock to $1.25 per share from $1.20 paid earlier, denoting a 4.2% hike. In the last five years, the company has raised its dividend eight times, and its five-year annualized dividend growth rate is 10.21%, which is encouraging. Such efforts raise investors’ optimism in the stock.
Other Stocks to Consider
Some other top-ranked stocks from the REIT sector are Iron Mountain IRM and STAG Industrial, Inc. STAG, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Iron Mountain’s current-year FFO per share of $3.98 suggests projected growth of 4.74%.
The Zacks Consensus Estimate for STAG Industrial’s 2023 FFO per share has moved 1.3% upward in the past two months to $2.28 and indicates an estimated increase of 3.2% year over year.
Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.
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