Lamar Advertising’s LAMR shares have jumped 19.9% in the quarter-to-date period compared with its industry’s growth of 4.4%.
Earlier this month, this real estate investment trust (REIT), headquartered in Baton Rouge, LA, reported third-quarter 2022 adjusted funds from operations (AFFO) per share of $2.03, beating the Zacks Consensus Estimate of $1.89. The figure grew 6.8% year over year.
Per management, the company is aiming toward the top end of its earlier-provided range for the full-year AFFO per share. In its first-quarter earnings release, LAMR updated its guidance issued in February 2022 and projected the AFFO per share to lie between $7.20 and $7.35.
Analysts, too, seem bullish about this Zacks Rank #2 (Buy) company. The Zacks Consensus Estimate for the company’s 2022 funds from operations (FFO) per share has moved 1.4% upward over the past month to $7.34, indicating a favorable outlook for LAMR.
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Let us decipher the factors behind the surge in the stock price.
The United States advertising market is witnessing a solid recovery post the pandemic.
The continued sales momentum across Lamar’s billboard, logo, transit and airport businesses aided its third-quarter 2022 performance. Particularly, categories, including services, education, restaurants, auto and amusements, and entertainment, portrayed strength in the third quarter.
Lamar enjoys an impressive national footprint of outdoor advertising assets. It holds a leading position as a provider of logo signs in the United States. It offers its customers the largest network of digital billboards in the United States, with more than 4,300 displays as of the September-quarter end.
Also, its diversified tenant base across various sectors and focus on local businesses have paid off.
In third-quarter 2022, the acquisition-adjusted net revenues climbed 6% year over year, while the acquisition-adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased 5.7%. Free cash flow of $176 million increased 1.3% year over year in the quarter.
The rates on its large-format traditional bulletins increased almost 8% in the third quarter, after witnessing growth of more than 9% in the first half of 2022. In addition, the occupancy of its outdoor portfolio remains at a historic high.
Given the technological advancements and low-cost nature of out-of-home advertising, it has been gaining traction in recent years. Therefore, Lamar’s strategic acquisitions of outdoor advertising assets to increase the number of outdoor displays in its existing and new markets have been fruitful. In the quarter ended Sep 30, 2022, LAMR completed acquisitions worth $53.6 million, adding almost 500 advertising displays.
On the balance-sheet front, Lamar had $857.3 million in liquidity as of Sep 30, 2022. As of the same date, there were no borrowings outstanding under its revolving credit facility. Its well-laddered debt maturity profile and low leverage compared with its industry have positioned it well to capitalize on long-term growth opportunities.
The company’s trailing 12-month return on equity (ROE) is 40.03% compared with the industry’s average of 4.65%. This reflects that the company is more efficient in using shareholders’ funds than its peers.
Its projected current cash flow growth is 32.90% compared with 9.70% growth estimated for the industry.
Solid dividend payouts remain the biggest attraction for REIT investors, and LAMR has remained committed to the same. The company has been consistent in paying its dividends. It rewards its investors with dividend hikes from time to time. In May 2022, it increased its quarterly dividend payment on its Class A common stock and Class B common stock from $1.10 per share paid out in March 2022 to $1.20, marking a hike of 9.1%. Such efforts boost investors’ confidence in the stock.
Other Stocks to Consider
Some other top-ranked stocks from the REIT sector are VICI Properties VICI, Equity Commonwealth EQC and Chatham Lodging Trust REIT CLDT.
The Zacks Consensus Estimate for VICI Properties’ current-year FFO per share is pegged at $1.91. VICI carries a Zacks Rank #2 at present.
The Zacks Consensus Estimate for Equity Commonwealth’s ongoing year’s FFO per share is pegged at 33 cents. EQC currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Chatham Lodging Trust’s FFO per share is pegged at $1.17. CLDT currently carries a Zacks Rank of 2.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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