Too Late To The Party?
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
You’ve arrived at the party, not so early enough that you’ve surprised your hostess in her bathrobe, but just early enough that the shrimp platter has just been put out, the appetizers are steaming hot, and the good bubbly is delightfully cold. More guests are beginning to arrive and there’s a jazzy atmosphere beginning to develop. You want to stay a while longer at this point. Then comes the tipping (or tipsy) point when the energy starts flagging but to all outward appearances the party is still in full swing. Now is the time to kiss your hostess and thank her for such a good time.
Such is the case with the party at Lamar Advertising (NASDAQ: LAMR). Some analysts like Deutsche Bank, Goldman Sachs, and Wells Fargo have just joined the party. Deutche Bank initiated coverage on Oct. 4 with a Buy, price target $45, Wells Fargo upgraded Lamar to Outperform, and Goldman Sachs upgraded it to a Conviction Buy on Sept. 18.
Over a year ago it was expected that Lamar, the outdoor advertising name, would benefit from political advertising expenditures. Since then it has more than doubled. On Oct. 15, it closed at a 52 week high of $38.37. Now with a P/E of over 3,837 (yes, that’s right, 3,837) as big as one of their billboards, our hostess is running out of the good booze and snacks.
Lamar reports again the day after the election on Nov. 7. Is there something besides the political numbers (probably baked in) that are getting these latecomers so giddy? Wells Fargo is citing upside from the company’s announcement that it will apply for REIT status. Goldman Sachs thinks the IRS and SEC will approve it and raised its price target to $42.00.
Lamar is the billboard king in the US, Canada, and Puerto Rico, the name you can’t avoid on the nations’ highways, byways, buses, and transit stops (airports, bus stops, and train stations). As well as billboards, the advertising company has a logo business.
Some big investors have been trimming their stakes after its big run, chiefly SPO Advisory Corp and Abrams Capital Management L.P. Abrams may have left the party a little early leaving $5 per share on the table. There was also a much larger sale in early August by Abrams. See more from fellow Fool Meena Krishnamsetty on these institutional holders.
This REIT conversion isn’t amusing party pooper Piper Jaffray which noted if it happens at all, it likely won’t happen until tax year January 2014. Investors that like REITs for their outsized yield might not appreciate a REIT in such an erratic sector such as advertising, particularly outdoor advertising in which local sentiment can be vocal against billboards.
When Lamar reported on Aug. 8 revenue came in 4% better at $304.9 million from a year ago at $293.3 million. The 4% increase as said before was likely due to political ads as PricewaterhouseCoopers LLC predicted in June that overall US advertising would grow 7% with spending on political campaigns and the Olympics. Lamar has some evergreen clients in big fast food chains and retailers. It also bought American Outdoor Advertising, a Phoenix, Arizona billboard company for an added 157 digital and static billboards. That purchase sent shares up 10%, Wall Street liking the addition of another major market to Lamar’s 200 US markets.
It looks like Lamar’s competitor Clear Channel Outdoor Holdings (NYSE: CCO) wasn’t even invited to the party. When it reported Q1 earnings on May 4, the stock dived 10% due to European exposure which accounts for 56% of revenues. It has a negative EPS of -0.10. While Lamar doubled Clear Channel was cut more than half in the spring and summer, from $14.88 on March 5 to a low of $4.48 in August. It has climbed up since then and the short interest has decreased since late August.
The company, like Lamar, has a lot of debt. The debt/equity ratio is 1.92. Clear Channel Outdoor is now trading slightly above its 200 day moving average of $6.11. Clear Channel is a worldwide player (except Africa) and thus has some international headwinds.
The company, a subsidiary of Clear Channel Communications, is somewhat more diversified than Lamar with its Streetbikes sales and outdoor furniture (think municipal type outdoor furniture) and other outdoor municipality type services.
Interestingly enough Abrams Capital Management L.P also has a decent sized stake in Clear Channel with a third place as largest institutional holders behind J.P. Morgan Chase and Mason Capital Management LLC, the top institutional holder with 5,000,000 shares as of June 29.
Then there’s CBS Outdoor which is held by CBS Corporation (NYSE: CBS). It is only one of their six operating segments and to compare these stocks when CBS is so obviously an entertainment and content giant is patently unfair but I’m going to go ahead and do it anyway. On almost any metric you want CBS is a better stock with a reasonable P/E of 15.18 and a forward P/E of 11. The stock is up 47% over the last year and it has a yield of 1.40%.
The return on assets however is 6.66% (really, the mark of the beast) and it has a large amount of debt. It already has had a huge run and its fall TV lineup isn’t thrilling viewers or analysts but like Disney, it makes money many different ways.
Well, as far as I can see it, the party for Lamar may be winding down. Our hostess is visibly yawning and making none too subtle gestures for us to go home. You may want to take a look at Clear Channel if you feel like it’s oversold but that would definitely be more speculative. CBS is a name that’s dependable but you’d really want to compare it with Disney and Comcast. And thanks, I had a really great time.
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