Lamar (LAMR) Dips On Outdoor Advertising Expenses Worries

We updated our research report on Lamar Advertising Co. (NASDAQ:LAMR) on Aug 17, 2016. This Baton Rouge, LA-based real estate investment trust (“REIT”) is one of the largest owners and operators of outdoor advertising structures in the U.S. It provides advertising services to restaurants, retailers, automotive, real estate, health care, gaming, service, hotel and motel.

Lamar’s growth strategy is hinged upon the persistent acquisition of outdoor advertising assets. But, in the regulated outdoor advertising industry, acquisitions require considerable subsequent investments for the maximization of profitability. Increased capital expenditures related to the acquired outdoor advertising assets could reduce free cash flow and strain margins, hampering the financial performance of the company.

Further, Lamar competes with larger companies with diversified operations such as television, radio and other broadcasting media, which partly impedes its growth momentum. Moreover, any rise in interest rates pose challenges before the company.

However, this outdoor operator has an impressive national footprint and is a leading provider of logo signs in the U.S. Moreover, the company enjoys a diversified tenant base comprising restaurants, services, retailers and health care companies.

On Aug 9, Lamar reported second-quarter 2016 adjusted funds from operations (“FFO”) of $1.37 per share, surpassing the Zacks Consensus Estimate of $1.24 and the year-ago tally of $1.22.

Following the earnings release, the current quarter FFO estimate has declined by 2 cents to $1.25 per share over the past seven days.

The stock presently carries a Zacks Rank #4 (Sell).

Investors interested in the REIT sector can consider stocks like CoreSite Realty Corporation (NYSE:COR) , Gramercy Property Trust Inc. (NYSE:GPT) and HCP, Inc. (NYSE:HCP) . All these stocks hold a Zacks Rank #2 (Buy).

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.