This article is proudly sponsored by the Business Ethics Team at the University of Texas at Austin!
About Lamar Advertising
If you’ve ever been flying down the highway, the chances that you’ve whizzed by one of Lamar’s billboards is extremely high.
Businesses, organizations and individuals of all types use Lamar Advertising and its services to spread the word, whether about a gas station with a Wendy’s connected to it or a controversial social cause, Lamar is one of the biggest in the game of physical advertising for those who are itching to get an idea out there.
No, billboards aren’t the most exciting business nor are they as sleek or up-and-coming as, say, a cybersecurity start-up or a travel and lodging platform well enjoyed by the masses, but Baton Rouge, Louisiana-headquartered advertising company Lamar still deserves its time in the spotlight.
As a matter of fact, in the billboard sphere, Lamar is kind of a big deal.
Sure, its billboard displays themselves are rather large but it is also said that the company accounts for nearly an entire quarter of the industry’s total revenue, which is substantial to say the absolute least.
We also like to think that the company’s business model is somewhat resistant to recessionary and inflationary pressures as those who are looking to advertise on billboards likely are inelastic for the most part, or their purchasing decisions aren’t easily swayed by changes in the price of a good or service.
Individuals and businesses want to be heard.
In addition to providing the real estate for prospective and current advertisers on regular, static billboards, the company also offers digital billboards along with a few other relevant product offerings.
We’re glad we could prove that the billboard world isn’t as boring as one might imagine, although it still is a little boring.
Let’s move right along to Lamar Advertising’s core financials in hopes of ultimately devising whether or not this company’s stock is worth considering investing in for the foreseeable future.
Lamar’s stock financials
As a means of getting things kicked off, Lamar’s stock (NASDAQ: LAMR) is currently trading at a share price of $98.19, accompanied by a market capitalization of just under $10 billion, a price-to-earnings (P/E) ratio of 23.40 all while issuing its shareholders an annual dividend of $5.00.
Before breaking down these preliminary financials, a note is in order regarding Lamar’s annual dividend.
This company is categorized as a real estate investment trust (REIT), which means it is subject to a few specific rules, one of which includes that it is required to pay out a whopping 90% of its taxable income to its shareholders.
This tends to be a great deal for long-term oriented, dividend favoring investors.
This REIT requirement is probably why the company issues such a strong dividend.
We just figured we’d mention one of the inherent perks of being invested in a REIT company’s stock.
As it pertains to the other initial figures listed above, we knew coming into this stock analysis article that Lamar was a behemoth in the billboard advertising space so we weren’t at all surprised to find that it’s a nearly $11 billion company.
Additionally, it’s also worth noting that the company’s present price-to-earnings ratio implies that Lamar’s stock is just ever so slightly overvalued at the moment, trading at around 23 times earnings, whereas 20 times earnings is generally said to indicate that a stock is trading at exactly fair value and thus anything higher means that the stock is overvalued relative to its intrinsic value.
Therefore, we’re not concerned with Lamar’s valuation at the moment, given that it is essentially trading at fair value, but it is good to know where its stock stands on the valuation scale.
Getting a bit more intimate with the company’s financial statements, Lamar’s executive team, according to its balance sheet, is in charge of approximately $6.4 billion in terms of total assets as well as around $5.3 billion in terms of total liabilities, which to us, makes sense.
Real estate in general is a long-term, debt-heavy business.
Although we’re happy to find that the company’s total assets outweigh its total liabilities overall, it is by a relatively narrow margin but again, given the aforementioned fact above, Lamar likely buys and holds onto the real estate it acquires and over time and slowly but surely pays it down.
At least, this to us would make the most sense as to why Lamar has a heightened amount of total liabilities, not to mention the other costs it incurs through its employees and other related expenses.
All in all, we’re not sweating bullets over the company’s balance sheet.
Onto the company’s income statement, Lamar’s total revenue over the last handful of years has been as consistent as expected, but we were glad to receive some verification as we had our initial worries regarding what COVID-19 did to the company and its primary line of business.
From the standpoint of total annual revenue, it hasn’t done much at all, if anything for that matter.
Specifically, Lamar’s revenue since 2018 has remained between nearly $1.5 billion (2020) and just north of $2 billion (2022).
The slight increase in total revenue in 2022 can likely be attributed to the added costs that it passed onto its customers, as most other major businesses were able to do during what so far has been the worst of the COVID-19 pandemic.
Consistency fits on Lamar like a glove.
Of the last of the major three financial statements, as it relates to Lamar’s cash flow statement the company hasn’t seen a negative year (from our measure, which is over the last five reported years) in either net income nor total cash from operations which, given its recent revenue resilience, isn’t all too surprising but more so validating that Lamar is a consistent, predictable operator, even from the perspective of cash flow.
Lamar’s stock fundamentals
We initially pegged the billboard industry to be a fairly profitable one and we were far from wrong.
That is, according to TD Ameritrade’s platform the industry’s average trailing twelve month (TTM) net profit margin is 27.51%, whereas Lamar’s stands at 21.59%.
At first we were a little thrown off as to why the company’s TTM net profit margin is notably lower than that of the industry’s average, however, after further thought it makes a bit of sense considering how fragmented the billboard industry is.
Particularly on a regional basis, it is our understanding that there are probably plenty of much smaller competitors that are able to turn a higher TTM net profit margin given the relatively small focus and scale in operations, whereas one of the largest companies in the sector, Lamar, has a lot of operations planted down and it’ll seemingly take a little time for the company to reach a point at which its TTM net profit margin equals that of its smaller, more nimble competitors.
While we certainly don’t like it, we understand.
Lastly, when it comes to the company’s TTM returns on both assets and investment, Lamar’s outpace that of the industry’s average at a solid rate. For example, according to TD Ameritrade’s platform, Lamar’s TTM return on assets stands at 7.01% compared to the industry’s average of 4.13%.
Its TTM return on investment is stronger than the industry’s average by a similar amount.
Should you buy Lamar stock?
Especially in this current market environment, consistency is a gift, however, when valuation is thrown into the shuffle, it can act as somewhat of a curse.
Particularly, from our standpoint, although the company’s stock is far from wildly overvalued, it is still a bit overvalued and although we like Lamar’s core financials and general financial structure, we sympathize greatly with those who aren’t yet rushing out to buy shares in the company’s stock (NASDAQ: LAMR).
These numbers are solid but they don’t excite us nor do they give us the sense that they are worth paying any sort of premium for.
These are the primary takeaways and reasons we feel it is most objective and fair to give the company’s stock a “hold” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.