Digital And Transit Advertising Expansion Will Drive Stronger Long Term Earnings Power

Catalysts

About OUTFRONT Media

OUTFRONT Media operates a leading portfolio of out of home and transit advertising assets across major U.S. markets.

What are the underlying business or industry changes driving this perspective?

• Rapid growth in digital and programmatic out of home, highlighted by double digit digital revenue expansion and nearly 30 percent growth in automated sales, is expected to structurally lift revenue growth and expand margins as higher yield inventory becomes a larger share of the mix.
• Surging transit performance, led by New York MTA campaigns with large enterprise brands and over 50 percent growth in digital transit revenue, positions transit as a high margin growth engine that can meaningfully enhance consolidated earnings.
• The industry first end to end partnership with AWS to enable planning, buying and measurement on a single platform can attract incremental brand and agency budgets, deepening wallet share and supporting sustained revenue and AFFO growth.
• Disciplined portfolio optimization, including the exit of low margin New York and Los Angeles billboard contracts and tight expense control, is already lifting OIBDA margins and is expected to continue to support net margin expansion as revenue scales.
• Growing advertiser demand for impactful real world brand experiences as a complement to AI driven digital marketing, combined with OUTFRONT's premium IRL assets and experiential capabilities, is expected to support higher pricing power and long term earnings growth.

Assumptions

This narrative explores a more optimistic perspective on OUTFRONT Media compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming OUTFRONT Media's revenue will grow by 3.8% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 6.4% today to 14.2% in 3 years time.
• The bullish analysts expect earnings to reach $287.0 million (and earnings per share of $1.69) by about December 2028, up from $115.4 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $250.8 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 20.5x on those 2028 earnings, down from 34.6x today. This future PE is lower than the current PE for the US Specialized REITs industry at 27.4x.
• The bullish analysts expect the number of shares outstanding to grow by 0.13% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.06%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Transit growth is increasingly concentrated in the New York MTA franchise, including high margin campaigns and a MAG that escalates with inflation. Any downturn in ridership, MTA budget stress or contract repricing could slow transit demand, compress high incremental margins and pressure consolidated earnings.
• The strategy relies heavily on rapid digital and programmatic expansion, yet digital billboards are only modestly growing and programmatic still accounts for less than one fifth of digital revenue. Slower than expected advertiser adoption or intensifying competition for digital out of home budgets could limit top line growth and stall margin expansion, weighing on long term revenue and net margins.
• Billboard revenues are essentially flat after exiting two large contracts and still face category weakness in areas like retail, alcohol and parts of entertainment. If secular pressure on traditional brand advertising persists, OUTFRONT may struggle to re accelerate the billboard segment, limiting scale benefits and constraining future earnings growth.
• The business model requires sustained capital investment into digital conversions, transit assets and experiential capabilities, while carrying leverage of roughly 4.7 times and interest expense in the range of $140 million to $145 million. Higher rates or a weaker ad cycle could reduce financial flexibility, increase funding costs and reduce free cash flow available to support earnings and dividends.
• The bullish narrative assumes that brands will structurally shift budgets toward real world brand experiences. If AI driven performance marketing and streaming platforms continue to recapture spend, OUTFRONT’s experiential and event driven revenue tied to sports, entertainment and sponsorship could prove more cyclical than expected, driving volatility in revenue and limiting sustainable improvement in net margins and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for OUTFRONT Media is $27.0, which represents up to two standard deviations above the consensus price target of $22.4. This valuation is based on what can be assumed as the expectations of OUTFRONT Media's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $27.0, and the most bearish reporting a price target of just $19.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $2.0 billion, earnings will come to $287.0 million, and it would be trading on a PE ratio of 20.5x, assuming you use a discount rate of 9.1%.
  
• Given the current share price of $23.9, the analyst price target of $27.0 is 11.5% 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.