Digital Billboard Expansion And 2025 Acquisitions Will Strengthen Market Position

Key Takeaways

• Planned digital billboard expansion and acquisitions aim to boost revenue, enhance market share, and improve margins through high-growth opportunities and operational synergies.
  
• Strategic divestments and strong financial positioning enable Lamar to reinvest in growth or return value to shareholders, enhancing financial stability and earnings potential.
  
• Increased costs and lower-than-expected AFFO growth, combined with political ad revenue concerns, may negatively impact Lamar Advertising's net income and revenue growth in 2025.

Catalysts

Operates as an outdoor advertising company in the United States and Canada.

• Lamar Advertising plans to significantly increase its deployment of digital billboards in 2025 with at least 350 new displays, aiming to benefit from the high-growth programmatic sector. This expansion can positively impact revenue growth due to the higher demand and pricing power for digital advertising spaces compared to traditional ones.
  
• The company expects more active acquisition activity in 2025, with plans for $150 million in deals, potentially more. This is anticipated to expand their footprint and market share, leading to increased revenue and potentially improving net margins through synergies and efficiency gains.
  
• Lamar's strategic divestment of its 20% interest in Vistar Media has resulted in substantial proceeds that strengthen its balance sheet, with plans to deploy this capital, possibly in further strategic initiatives or shareholder returns, impacting earnings favorably.
  
• The stabilization and potential recovery of national advertising, especially with categories like services, government, and construction showing strong growth, might positively affect revenue. National advertising represents about 22% of Lamar's book, and improvements here can contribute to revenue growth.
  
• The company maintains strong leverage and liquidity positions, allowing access to capital for strategic investments or operational improvements. This financial strength can support earnings growth by facilitating investments that drive business expansion or cost-slashing initiatives to improve net margins.

Lamar Advertising Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Lamar Advertising's revenue will grow by 3.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.3% today to 27.3% in 3 years time.
• Analysts expect earnings to reach $672.3 million (and earnings per share of $6.42) by about March 2028, up from $361.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.5x on those 2028 earnings, down from 32.4x today. This future PE is lower than the current PE for the US Specialized REITs industry at 27.9x.
• Analysts expect the number of shares outstanding to grow by 0.15% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.8%, as per the Simply Wall St company report.

Lamar Advertising Future Earnings Per Share Growth

Risks

• The anticipated AFFO growth for 2025 is lower than previous estimates due to the absence of Vistar's contribution and increased maintenance CapEx, which may impact net income expectations for the year.
  
• There is concern regarding replacing political advertising revenue, which was notably high in 2024. If political spending does not match past levels, it could affect revenue growth negatively.
  
• The company is in the peak spending phase for its ERP conversion, which indicates elevated corporate expenses. Although expected to decline in subsequent years, this increased expenditure may impact net margins for 2025.
  
• The depreciation and amortization expense rose significantly due to increased costs associated with asset retirement obligations (ARO), impacting the company's financial statements, although they are non-cash items and do not affect adjusted EBITDA or AFFO directly.
  
• Lamar's national ad revenue growth is lagging behind some of its peers, possibly due to its market presence being less robust in top ad-spend areas like New York and LA. This is a structural driver that could hinder expected revenue increases from national advertising campaigns.

Valuation

• The analysts have a consensus price target of $132.6 for Lamar Advertising based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $150.0, and the most bearish reporting a price target of just $124.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.5 billion, earnings will come to $672.3 million, and it would be trading on a PE ratio of 24.5x, assuming you use a discount rate of 6.8%.
• Given the current share price of $114.47, the analyst price target of $132.6 is 13.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.