Lamar Advertising -- In Your Dreams!

Cramer was buying Lamar Advertising Company (LAMR) this morning and the stock went nuts so we sold (sorry Jimbo) the Feb $70 puts for $1.40, already $1.75!

We went bearish on Lamar BECAUSE of Cramer.

That company does not and will not make enough money to justify this cap! Yes, they are growing fast -- their P/E will drop from 175 (not a typo) all the way down to 100 next year! Whoa -- let's back up the truck and do a 'mon back on a stock that has a NTA (net tangible assets) of -$550M and $1.8B in debt with no cash ($7M) and only $171M in receivables on $1B in revenues that will generate a whopping 50M (maybe) in profits this year!

How much would you pay for this dream company?

Cramer says $7B is too cheap! He says someone is going to swoop in and snap this "value play" up because nothing says lovin' like someone digging down deep and piling an additional $7B in debt on top of the $1.8B of existing debt in order to buy this gold mine. The interest on $8.8B in debt at 6% ($524M a year) would be more money than this company has ever made and also more money than it is likely to make in the next 5 years. Boo Yah!

Comments

[CrossProfit:]

We are with you on this one.

In order to pay down the debt they may issue more stock. Either dilution or ever increasing debt is a sure remedy for a correction. The only reason not to play the options is the timing factor. The market has, can and will throw some nasty time curves every now and then.

BTW, as a going concern, 6% on 1.8B is 'only' 108M! Is that the 2008 projected profit figure?

CrossProfit

2007 Jan 14 03:11 PM

[Philip Davis:]

They are still in 2006 but projection is for them to earn .64 a share, roughly $65M in '07, but that of course is after paying down existing debt (or at least servicing the interest).

My point is, if you are going to plunk down the extra $7Bn to buy this company, a net of $65M a year is just not going to cut it for most people! An acquirer would be limited (by a rational lender) to less than $1.5Bn in debt meaning they would have to come up with $5.5Bn in cash and stock just to pay the current market cap. You really don't want someone like me as a shareholder when you propose dilluting me by $5Bn to take on this company - even if it is Google doing the buying!

2007 Jan 15 12:06 PM

[Alex Garcia:]

The value in this company is in it's assetts which are worth IMO $112 not earnings.

2007 Feb 22 09:14 AM