On Thursday, Citi revised its stance on Lamar Advertising Co (NASDAQ: NASDAQ:LAMR), downgrading the stock from Buy to Neutral and establishing a price target of $122.00.
The adjustment comes as the firm's analysis indicates limited potential for the company's near-term adjusted funds from operations (AFFO) multiple to expand beyond its historical range.
Lamar Advertising, which specializes in outdoor advertising, has seen its NTM AFFO multiple fluctuate within a narrow band, excluding the COVID-19 period. The consensus among analysts suggests that the company's AFFO per share is expected to grow at a rate consistent with past trends, which does not warrant an expansion of the multiple according to historical data.
The firm's current trading multiple is approximately 15 times the projected NTM AFFO, which is at the upper boundary of its typical pre-COVID range of about 11 to 16 times. This valuation suggests that the stock is currently priced near the higher end of its customary valuation spectrum.
The downgrade reflects a view that the stock’s current price incorporates the anticipated growth in AFFO per share and that there is limited room for an increase in the valuation multiple. The new price target of $122.00 is set with these considerations in mind.
Lamar Advertising's revised rating and price target are based on the company's historical trading patterns and projected earnings growth, without factoring in significant changes to the broader market conditions or unexpected shifts in the company's operational performance.
In other recent news, Lamar Advertising Company has reported a significant uptick in its first-quarter 2024 results, with a revenue increase of 5.3%, marking the largest growth in 12 consecutive quarters.
Adjusted EBITDA also saw a 6.5% rise, supported by robust local sales and the company's digital platform. Despite a dip in national advertising spending, Lamar raised its full-year AFFO per share guidance to between $7.75 and $7.90, hinting at a positive outlook.
Local business sales increased by 6.7%, while national sales dipped by 5.5%. The company's digital platform revenue went up by 2.7% on a same-store basis, and political revenue surged to $3.8 million. Lamar completed four acquisitions totaling $18 million in Q1, strengthening its market position.
Lamar anticipates steady organic growth throughout 2024, with support from political advertising in the latter half of the year. However, it is preparing for increased expenses due to the return of COVID-19 relief grants and peak ERP system spending.
The company's strong balance sheet and liquidity position it well for future growth and debt management. Despite challenges in the national ad space, Lamar's overall outlook remains positive, backed by consistent performance in key sectors and strategic initiatives.
InvestingPro Insights
In light of Citi's recent downgrade of Lamar Advertising Co (NASDAQ:LAMR), it's valuable to consider additional perspectives provided by InvestingPro. The company is currently trading at a high P/E ratio of 23.97, which is above the industry average, indicating that the market may be expecting higher earnings growth in the future. However, this high P/E ratio, when paired with a PEG Ratio of 1.38 for the last twelve months as of Q1 2024, suggests that the company's earnings growth does not necessarily justify the premium valuation.
InvestingPro Tips highlight that Lamar Advertising has been trading near its 52-week high, with the price at 96.2% of this peak. This aligns with Citi's analysis that the stock is currently priced at the upper end of its valuation spectrum. Moreover, while the stock has been profitable over the last twelve months, it's also noted that short term obligations exceed liquid assets, which could present liquidity challenges.
For investors seeking a deeper analysis, there are additional InvestingPro Tips available that could provide further insights into Lamar Advertising's financial health and market position. Readers can explore these tips on InvestingPro and take advantage of a special offer using coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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