Here's Why You Should Retain OUTFRONT Media Stock for Now
OUTFRONT Media OUT is well-poised to benefit from its diversified portfolio of advertising sites, both geographical and industry-wise, in the key markets of the United States. Strategic investments and expansion efforts to enhance its digital billboard portfolio augur well for its long-term growth opportunities. However, competition from other advertising channels and elevated expenses are worrisome for the company. A high interest rate environment adds to its concerns.
What’s Aiding OUTFRONT Media?
OUTFRONT Media’s advertising sites are geographically diversified, with a presence across the largest markets in the United States. The large-scale presence enables its clients to reach a national audience and also provides the flexibility to tailor campaigns to specific regions or markets. The company’s portfolio is diversified industry-wise. The diversification makes its revenues less volatile in nature. We estimate a year-over-year increase of 1.2% in its total revenues for 2024.
OUTFRONT Media has been making strategic investments in its digital billboard portfolio over the years, and these investments have started reaping benefits. Its total digital billboard displays reached 1,906 at the end of the second quarter of 2024. OUTFRONT Media has been making efforts to convert its business from traditional static billboard advertising to digital displays, which are helping expand the number of new advertising relationships and providing scope to boost digital revenues. We estimate a year-over-year increase of nearly 1% in billboard revenues in 2024.
To enhance its portfolio, OUTFRONT Media has also capitalized on acquisitions. In the first half of 2024, the company acquired several assets for approximately $7.6 million. In 2023, the company acquired several assets for around $33.7 million. Moreover, in 2022, it completed acquisitions worth $353.9 million. With such expansion efforts, the company remains poised to grow over the long term.
Moreover, given the technological advancements and low-cost nature of out-of-home (OOH) advertising compared with other forms of media, OUT has been growing at a rapid pace and continues to increase its market share. In the upcoming years, higher technology investments are expected to provide support to OOH advertising. OUTFRONT Media’s efforts to provide a unique technology platform for marketers to tap into growth opportunities bode well.
Over the past three months, shares of this Zacks Rank #3 (Hold) company have risen 20.7%, outperforming its industry’s growth of 18.4%.
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What’s Hurting OUTFRONT Media?
OUTFRONT Media’s revenues and operating results are sensitive to fluctuations in advertising expenditures, general economic conditions and other unexpected external events. Given the slowdown in the economy, we expect the top-line growth to be affected to some extent in the near term. With respect to increasing the number of digital displays in its portfolio, the company expects to incur significant equipment deployment costs and capital expenditures in the upcoming years.
A high interest rate environment is likely to keep borrowing costs elevated for OUTFRONT Media, affecting its ability to purchase or develop real estate. Its total debt as of June 30, 2024 was $2.51 billion. We expect a year-over-year increase of 1.2% in the company’s net interest expenses in 2024.
OUTFRONT Media faces competition from other outdoor advertisers for customers, display locations and structures. It also competes with other media, including conventional platforms such as television, radio, print media, direct mail marketers and online, mobile and social media platforms. This is likely to weigh on the company’s pricing power in the market, affecting profitability.
Stocks to Consider
Some better-ranked stocks from the REIT sector are Cousins Properties CUZ and Lamar Advertising LAMR, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Cousins Properties’ 2024 FFO per share has been raised marginally over the past two months to $2.66.
The Zacks Consensus Estimate for Lamar Advertising’s current-year FFO per share has moved marginally north in the past two months to $8.09.
Note: Anything related to earnings presented in this write-up represents FFO, a widely used metric to gauge the performance of REITs.
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