The next time you take a road trip, pay attention to the billboards. Don’t just look at the actual billboard, where you might find a cow telling you to eat more chicken, look at the bottom of the billboard. You might see the name Lamar, which stands for Lamar Advertising Co (NASDAQ:LAMR).
The good news
In addition to digital, transit, and special product advertising, Lamar Advertising Co (NASDAQ:LAMR) is a big player in the billboard advertising market. These billboards can be found on highways, expressways, and primary arteries.
What many people might not know is that billboard advertising is arguably the best form of advertising in existence. The cost-per-thousand-impressions is the best an advertiser will find anywhere, which means demand is likely to remain high over the long haul.
Advertisers like billboards for other reasons as well. One of those reasons is that the ad can’t be closed, like a window on a computer. Also, according to Lamar Advertising Co (NASDAQ:LAMR), 71% of road travelers notice out-of-home ads, and out-of-home ads reach 96% of Americans each week.
Another big selling point is that approximately 33% of social media is now viewed on a mobile device, which is in thanks to the increased popularity of smartphones and tablets. This means consumers are more likely to spot a billboard ad and share it with friends while on the road. (Hopefully, they’re not the ones driving.)
The bad news
Lamar Advertising Co (NASDAQ:LAMR) aims to become a REIT, but the IRS stated that this process has been delayed because it wants to look further into qualification measures.
The Wall Street Journal describes a REIT adeptly: “REITs don’t pay corporate income taxes on the taxable income they distribute to shareholders as a dividend, and they must pay out at least 90% of taxable income to qualify. Because of those hefty payments, REITs are popular with individual investors seeking higher yielding securities.”
Lamar Advertising Co (NASDAQ:LAMR)’s company culture also leaves a lot to be desired, and some anonymous employee comments are concerning.
According to Glassdoor.com, employees have rated their employer a 2.5 of 5, and only 24% of employees would recommend the company to a friend. One of the biggest complaints is the commission rate, which seems to be around 1.2% to 2%. Other complaints include salespeople being spread too thin due to cuts in other areas, unqualified managers, and the company’s poor reputation throughout the industry.
Lamar vs. peers
Lamar Advertising Co (NASDAQ:LAMR)’s revenue has improved over the past two years after two years of declines. Lamar has also seen two years of earnings improvements after two years of losses. However, with a profit margin just north of 2% and a trailing P/E of 46, there isn’t much margin for error. Lamar also owns a debt-to-equity ratio of 2.45, which is well above the industry average of 0.8. This could impede growth potential, especially if the economy weakens.
Clear Channel Outdoor Holdings, Inc. (NYSE:CCO) saw revenue decline in 2012, it has reported losses in four of the last five years, and it has also been in the red in three of the last four quarters. According to an anonymous employee reporting on Glassdoor.com, its restructuring plan has been ineffective thus far.
Clear Channel Outdoor Holdings, Inc. (NYSE:CCO)’s profit margin of -7.25% is worrisome, but its debt-to-equity ratio of 14.41 is even more concerning. To make matters worse, Clear Channel is trading at 750 times earnings, making it one of the most expensive stocks throughout the broader market. With financials this bad, it’s surprising that the short position on Clear Channel Outdoor is only 4%.
