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Lamar Advertising: Lofty Valuations Skew The Risk/Reward

Mar. 05, 2020 8:28 AM ETLamar Advertising Company (LAMR)5 Comments
AB Capital profile picture
AB Capital


  • LAMR posts strong headline numbers, though, on an acquisition-adjusted basis, growth was relatively modest.
  • Slower expense growth helped drive an in-line EBITDA, with muted capex also boosting FCF numbers.
  • FY20 guidance numbers embed political and programmatic tailwinds, raising the bar for a further beat-and-raise.
  • With risks of an economic slowdown on the horizon, the risk/reward appears unfavorable at current levels.

As the leader within the out-of-home space, I think Lamar Advertising (NASDAQ:LAMR) remains well-positioned to deliver organic revenue growth in the low-single-digits over the longer-term on the back of its digital exposure, while its strong margin profile should allow it to weather the cycles effectively. I also like the REIT angle to the LAMR story, given the solid cash flow profile and healthy distribution to shareholders. That said, the strong momentum shown in 4Q19, particularly in national sales, has largely been priced into shares at this point. Though near-term political tailwinds could drive shares, I see the risk/reward as unfavorable at current levels, with the coronavirus set to weigh on the economic growth outlook.

Expense Controls Offset Modest Revenue Growth in 4Q19

LAMR posted headline revenues of $462.7 mm for the quarter, up +8.1% YoY, though I would point toward the Pro-forma numbers instead, which paint a more modest growth picture - acquisition-adjusted revenue grew at a modest 2.7% YoY, underperforming prior guidance of 3-3.5% growth.

Source: Company Filings

The top-line miss was mainly due to weakness in the retail vertical, which posted a -5% decline in November and December, reversing the ~2.5% growth seen throughout 2019. In total, the "negative swing" detracted from 4Q results by ~$2.5mm, though January has been tracking well at up "2.6%" per management.

"But the one that surprised us was retail. Quick - a little bit of color on retail. Through October of last year, retail was clicking along at approximately 2.5%. Then in November and December, it turned to a negative 5%. That positive to negative swing cost us about $2.5 million and was a major contributor to our slight miss for the quarter." - 4Q Transcript

The Local/National split remains at 75/25, with the former rising 1.8% YoY in 4Q19 (a sequential deceleration from 3.1% YoY

This article was written by

AB Capital profile picture
Semi-retired investor and former buy side professional. Keeping an eye on special situations and event-driven opportunities across the equity and credit universe. All views are my own.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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