Lamar Advertising's Stock Gains 12.6% YTD: Here's Why

Shares of Lamar Advertising LAMR have risen 12.6% year to date against its industry's increase of 3.3%. The company currently carries a Zacks Rank #2 (Buy).

Earlier this month, this real estate investment trust (REIT), headquartered in Baton Rouge, LA, reported second-quarter 2024 adjusted funds from operations (AFFO) per share of $2.08, which beat the Zacks Consensus Estimate of $2.07. The figure also compared favorably with the prior-year quarter's tally of $1.90. Results reflected year-over-year growth in the top line, driven by the continued strong demand from local and regional advertisers.

Per the company's chief executive, Sean Reilly, "The revenue gain, combined with continued discipline on expenses, allowed us to produce adjusted EBITDA growth of nearly 7% and diluted AFFO per share growth of 9.5%. Also, we continue to pace at the top end of our previously provided guidance of $7.75 to $7.90 for full year diluted AFFO per share."

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Let us decipher the factors behind the surge in the stock price and check whether this trend will last or not..

Lamar is one of the largest owners and operators of outdoor advertising structures in the United States. It enjoys an impressive national footprint and holds a leading position as a provider of logo signs in the United States. It enjoys a diversified tenant base, comprising tenants from the services, health care, restaurants, retailers, automotive, insurance and gaming categories.

Lamar also sources a significant part of its revenues from local businesses with a diversified base of tenants. This generally leads to less volatility in revenues. In the second quarter of 2024, local and regional sales accounted for 79% of the company's billboard revenues. Moreover, local and regional sales reported growth for the 13th consecutive quarter.

Over the recent years, the company has made concerted efforts to upgrade its portfolio, increasing occupancy in its existing advertising displays and enabling it to enjoy a significant market share in the U.S. outdoor advertising business. The company's increased focus on bolstering its digital capabilities augurs well for long-term growth. Lamar's digital revenues account for around 30% of its billboard billings.

Given the technological advancements and low-cost nature of out-of-home (OOH) advertising, it has been gaining traction in recent years. Therefore, Lamar's strategic acquisitions of outdoor advertising assets in its existing and new markets have been fruitful.

It completed 36 acquisitions for a total purchase price of $139 million in 2023 and 73 acquisitions of outdoor advertising assets for $479.8 million in 2024. During the first half of 2024, the company completed multiple acquisitions for a total cash purchase price of around $28.2 million. With such expansion efforts, it is poised to ride the growth curve.

On the balance sheet front, as of Jun 30, 2024, Lamar Advertising had a total liquidity of $744.3 million. Lamar has enjoyed historical cash flow growth of 8.25% compared with 2.57% of the industry. Moreover, this REIT's trailing 12-month return on equity (ROE) highlights its growth potential. Lamar's ROE is 42.18% compared with the industry's average of 3.26%. This reflects that the company reinvests more efficiently compared with the industry.

Solid dividend payouts remain the biggest attraction for REIT investors, and Lamar has been committed to the same. In the last five years, the company has raised its dividend seven times. Its five-year annualized dividend growth rate is 16.50%, which is encouraging. Such efforts raise investors' optimism about the stock.

However, expected choppiness in the national business in the near term and a high interest rate environment raise concerns.

Other Stocks to Consider

Some other top-ranked stocks from the REIT sector are Cousins Properties Incorporated and Terreno Realty Corporation TRNO, each carrying a Zacks Rank #2 at present.

The Zacks Consensus Estimate for Cousins Properties' ongoing-year FFO per share has increased marginally over the past month to $2.66.

The Zacks Consensus Estimate for Terreno Realty's 2024 FFO per share has moved marginally northward in the past month to $2.29.

Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.

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