Lamar Advertising: The Signs Are Positive
Summary
- REITs are off to a good start this year, and Billboard REITs are doing even better.
- Shares in Lamar Advertising have climbed 28% since October 13.
- This article examines growth, balance sheet, dividend, and valuation metrics for this large-cap REIT.
- This idea was discussed in more depth with members of my private investing community, Hoya Capital Income Builder. Learn More »
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REITs are off to a good start this year, and Billboard REITs are doing even better, posting a gain of nearly 11%, compared to the Equity REIT index gain of about 9%.
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Shares in Lamar Advertising bottomed on October 13 at $81.10, but have climbed 28% since then, to their recent price of $103.80. What is going on with this company, and what does the future hold?
This article examines growth, balance sheet, dividend, and valuation metrics for this large-cap REIT.
Meet the company
Lamar Advertising
Headquartered in Baton Rouge, Lamar Advertising (NASDAQ:LAMR) is the largest billboard company in America, with a market cap of $10.2 billion, dwarfing Outfront Media (OUT), which is the only other REIT in this sector. In business for 121 years, LAMR went public in 1997, and has approximately 80,000 advertising properties, comprising some 356,000 displays. They own the land under about 10% of those, and rent the other 90% on long-term ground leases.
Lamar offers 4 advertising formats:
- Billboards -- Large-format advertising structures located on major highways, expressways, and primary arteries, visible to commuters and long distance travelers. This includes over 4,200 digital billboards, the largest such network in the U.S., allowing multiple static ads to rotate on one location. These can be programmed to be changed at will for time of day, as well as weather and traffic conditions.
- Interstate logos -- Lamar contracts with government entities in 23 U.S. states and Ontario, Canada, to put corporate logos on road signs, such as exits from interstate highways.
Lamar Advertising website
3. Transit -- primarily on the sides of buses and at bus stops
4. Airport -- puts the customer's message on displays in airports, reaching over 200 million passengers per year, and is especially effective with frequent flyers.
LAMR maintains a staff of over 100 graphic artists that assist with design of the customers' displays at no extra charge. The production crew puts up 4,000 - 5,000 posters a day.
The company's lease liabilities taper off over the next 5 years, from a high of $214.6 million next year, to just $130.9 million in 2026.
Lamar Advertising lease liabilities (Company 10-Q for Q3 2022)
Through the first nine months of 2022, Lamar acquired 50 outdoor advertising assets valued at $288 million.
Lamar has an award-winning CEO and culture. The average tenure of senior management is over 30 years with the company.
Quarterly results
Stellar third quarter results for LAMR showed:
- Revenues of $527.4 million, up 10.6% YoY (year over year)
- Operating income of $181 million, up 35.8% YoY
- Net income of $146 million, up 36.9% YoY.
- Net income per diluted share came in at $1.44, up 37.1% YoY
- Total capex of $41 million, up 36.2% YoY.
- Adjusted EBITDA was $251 million, up 8.9% YoY.
- Cash from operations totaled $224.5 million, up 18.3% YoY
- FFO (funds from operations) totaled $207.9, up 10.8% YoY.
- AFFO increased 7.2% and diluted AFFO per share increased 6.8% YoY.
Billboard revenues jumped by $41.3 million, an increase of 9.6%, and Transit revenues boomed by 34.1% to $36.3 million, while Logo revenues held essentially even at $19.6 million.
Lamar Advertising revenue by segment (Company 10-Q for Q3 2022)
LAMR will report Q4 results on February 24.
Growth metrics
Like most REITs, LAMR took a hit in pandemic-stricken 2020, but the company came roaring back in 2021, with revenue and cash flow growth exceeding 25%, across the board. Growth moderated in 2022, but remained strong, resulting in sturdy but not spectacular 3-year CAGR figures. The company shed 22% of its market cap in the 2022 sell-off, and cash from operations stagnated, but revenue continued double-digit growth.
| Metric | 2019 | 2020 | 2021 | 2022* | 3-year CAGR |
| FFO (millions) | $527 | $478 | $644 | $749 | -- |
| FFO Growth % | -- | (-9.3) | 34.7 | 16.3 | 12.4% |
| FFO per share | $5.80 | $5.10 | $6.43 | $7.38 | -- |
| FFO per share growth % | -- | (-12.1) | 26.1 | 14.8 | 8.4% |
| TCFO (millions) | $631 | $570 | $734 | $716 | -- |
| TCFO Growth % | -- | (-9.7) | 28.8 | (-2.5) | 4.3% |
| Market Cap | $9.0 | $8.4 | $12.3 | $9.6 | -- |
| Market Cap Growth % | -- | (-6.7) | 46.4 | (-22.0) | 2.2% |
*Projected, based on Q3 2022 results
Source: TD Ameritrade, CompaniesMarketCap.com, and author calculations
Meanwhile, here is how the stock price has done over the past 3 twelve-month periods, compared to the REIT average as represented by the Vanguard Real Estate ETF (VNQ).
| Metric | 2020 | 2021 | 2022 | 2023 | 3-yr CAGR |
| LAMR share price Jan. 30 | $93.75 | $80.78 | $107.24 | $103.48 | -- |
| LAMR share price Gain % | -- | (-13.8) | 32.8 | (-3.5) | 3.35% |
| VNQ share price Jan. 30 | $95.09 | $84.96 | $104.95 | $89.19 | -- |
| VNQ share price Gain % | -- | (-10.7) | 23.5 | (-15.0) | (-2.11) |
Source: MarketWatch.com and author calculations
LAMR has been a better investment over the past 3 years than VNQ, paying a higher yield (see below), and posting an average annual share price gain of 3.35%, compared to the VNQ's loss of (-2.11)%.
Balance sheet metrics
Here are the key balance sheet metrics. LAMR's bond-rated balance sheet sports very low Debt/EBITDA and debt ratio, but low liquidity as well.
| Company | Liquidity Ratio | Debt Ratio | Debt/EBITDA | Bond Rating |
| LAMR | 1.25 | 26% | 3.6 | BB |
Source: Hoya Capital Income Builder, TD Ameritrade, and author calculations
As of September 30, LAMR reported $79 million in cash, $39 million in securitized accounts receivable, and $739 million available on its revolving senior credit facility, for total liquidity of $857 million.
As of that same date, LAMR was carrying $3.05 billion in debt, with $199.7 million coming due in the next 12 months. The largest category of debt is the senior credit facility, at $949 million. The company also owed $2.1 billion on senior notes, at a weighted average interest rate of 4.01%.
Lamar Advertising debt structure (Company 10-Q for Q3 2022)
Dividend metrics
The yield on LAMR shares is a full 100 bps (basis points) above the REIT average, and the Dividend Score is higher still. With a payout ratio of 70%, Seeking Alpha Premium rates the Dividend Safety a picture-perfect C-, indicating the company pays an aggressive dividend, without running undue risk of a dividend cut.
| Company | Div. Yield | 3-yr Div. Growth | Div. Score | Payout | Div. Safety |
| LAMR | 4.64% | 7.7% | 5.80 | 70% | C- |
Source: Hoya Capital Income Builder, TD Ameritrade, Seeking Alpha Premium
Dividend Score projects the Yield three years from now, on shares bought today, assuming the Dividend Growth rate remains unchanged.
Valuation metrics
In addition to paying a stronger dividend, Lamar Advertising sells for a lower Price/FFO than the average REIT, and at a much steeper discount to NAV. This makes LAMR an attractive proposition for value investors.
| Company | Div. Score | Price/FFO '22 | Premium to NAV |
| LAMR | 5.80 | 14.0 | (-13.8)% |
Source: Hoya Capital Income Builder, TD Ameritrade, and author calculations
What could go wrong?
The vast majority of LAMR assets sit on real estate the company does not own. If the price of ground leases should escalate significantly, this would put some pressure on the company's bottom line.
Recession is still a possibility in the near future. In that event, most companies would likely trim their advertising budgets, negatively impacting LAMR's top and bottom lines.
Investor's bottom line
Lamar Advertising is a solid company. There is no reason to sell, unless you are a short-term speculator. For the growth investor, over the next 2 - 5 years, Lamar Advertising is interesting, but not compelling, and thus merits a Hold rating. For the value investor, however, its combination of stability, strong dividend profile, and low price/FFO make it a mild Buy.
Seeking Alpha Premium
Despite giving LAMR an honor-roll report card of all As and Bs, the Seeking Alpha Quant Ratings system rates the company a Hold, as do 3 of the 4 Wall Street analysts covering the firm. The average price target is $106.00, implying just 2.4% upside.
Ford Equity Research, CFRA, and TipRanks all concur with the Hold rating, but the Street deems LAMR a Buy. Hoya Capital Income Builder deems LAMR to be priced 13% below fair value. As always, the opinion that matters most is yours.
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This article was written by
Disclosure: I/we have a beneficial long position in the shares of VNQ either through stock ownership, options, or other derivatives. 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.
Additional disclosure: A Buy, Sell, or Hold rating in this article does not constitute a Buy, Sell, or Hold recommendation. All investors should exercise their own due diligence, before investing in any stock.