Which Is The Better Pick: Lamar Advertising Or Outfront Media?

Which is a better pick: Outfront Media Inc OUT, a facilitator of billboard, transit and mobile assets in North America, or rival Lamar Advertising Co LAMR, one of the largest outdoor advertising companies in the world?

Imperial Capital has an answer. 

The Analyst

Imperial Capital's David Miller initiated coverage of Outfront Media with an In-Line rating and $22 price target. The analyst simultaneously initiated coverage of Lamar Advertising with an Outperform rating and $93 price target.

Lamar: Clear Winner

If the bull market is in the final innings, investors should hold the highest quality names regardless of the sector, Miller said in the initiation note. (See his track record here.) 

Within the outdoor advertising space, the top pick is Lamar, given its No. 1 or No. 2 share in each of its designated market areas, the analyst said. Lamar has a leading margin profile of 43.6 percent and the highest ROE in the outdoor sector at 28.8 percent, he said. 

Encouragingly, Lamar holds the top market position in highway directional and digital boards, which typically generate five to seven times more than a similar static board, Miller said. The company has the smallest exposure to the much lower margin business of transit advertising, he said. 

Lamar's exposure to the highway creates a uniquely advantage, as the average commute of Americans between rush hour times has grown from nearly 20 minutes in 1985 to more than 45 minutes today, Miller said. The many "frustrated commuters" are by default forced to look at Lamar's giant billboards whether they want to or not — unlike other forms of advertising like TV, where consumers have a choice.

Outfront Media: The Opposite Of Lamar

Outfront Media is the opposite of Lamar in terms of transit-heavy ads, such as those in airports and bus stations, instead of Lamar's superior highway-directional exposure, Miller said in the initiation note. And Outfront has a national focus with heavy competition, as opposed to Lamar's local focus with fewer competitors, he said. 

Beyond the opposite business strategies, the margin profiles are also polar opposites, with Outfront Media's margins "well below top performer" Lamar, the analyst said. 

Company-wide EBITDA margins for Outfront Media in the second quarter were19.7 percent, less than half of Lamar's 45.9-percent margins, the analyst said. The poor margin performance is a "problem," but it may be a symptom of the business strategy, as the company typically enters revenue-sharing agreements with municipalities that can be as high as 30 percent, he said. 

Price Action

Shares of Lamar Advertising were trading up 0.89 percent at the time of publication Thursday morning, while Outfront Media shares were up 0.75 percent. 

Related Links:

Outfront Media Shares Have Taken A Beating, But Is It Time To Buy?

Lamar Advertising Set To Reload On M&A Later This Year

Photo by Dethistoricaler/Wikimedia.