Lamar Advertising Company (LAMR) is benefiting from the rebound in pricing for local advertising and a stronger billboard business. Despite increased capital expenditures in the effort to digitize signs, higher expenses related to the recently acquired outdoor advertising assets, and higher interest expense from the increased debt level, free cash flow continues to expand. Interestingly, beneficial owner SPO Advisory Corporation has acquired an additional 1.5 million shares over the last few months, bringing its total holding to 9.5 million shares of the company.
In 2007, financial year annual earnings were $0.47 per diluted share, up 12% from $0.42 in 2006. Net revenues increased 8% to $1.21 billion, driven by strong growth in billboard revenues (+8.7%). The operating margin expanded 189 bps to 18.9% versus 17% in 2006. Total capital expenditures for the year amounted to $220.5 million. Net interest expense increased 43.8% to $162 million from $113 million in 2006, primarily due to a substantial increase in debt level of the company. The company generated a free cash flow of $152 million, up 2.1% from $149 million in 2006.
Concurrent with the earnings release, management provided guidance for the first quarter 2008. Net revenues are expected to be approximately $280 million, representing an increase of approximately 2% on a pro-forma basis. Total capital expenditures are expected to be approximately $200 million in 2008.
Lamar's stock has traded in a wide price-to-cash flow (P/CF) multiple range of 10 to 22 over the last five years. The recent acquisitions along with a strong economy generated strong net revenue for the company in 2006, driving the stock to the upper-end of the valuation range. With the economy weakening, Lamar's stock has traded down to the low-end of the historical P/CF valuation range. The target price of $55.25 is a mid-range 15 times 12-month trailing cash flow. The Buy rating is maintained.
Read the full analyst report on LAMR.
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