Lamar Advertising: Dividend Signals and Digital Growth Come Into Focus

Recent commentary around Lamar Advertising (LAMR) has centered on management reaffirming full year AFFO guidance and indicating room for a higher dividend if current business trends hold.

The recent reaffirmation of full year AFFO guidance and commentary on dividend capacity arrives as the stock trades at US$151.42, with a 30 day share price return of 7.28% and a 1 year total shareholder return of 31.76%. This suggests momentum has been building over both shorter and longer periods.

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With the stock near US$151 and trading at only a small discount to the average analyst price target of US$155.60, the key question is whether Lamar is still undervalued or if the market is already pricing in future growth.

Price-to-Earnings of 28x: Is it justified?

On the numbers provided, Lamar Advertising screens as undervalued using a P/E lens, with the stock on 28x earnings against several higher comparison points.

The P/E ratio compares the current share price with earnings per share, so it reflects what investors are currently paying for each dollar of profit. For a specialized REIT that already generates earnings and pays a dividend, this is a commonly watched yardstick.

Here, Lamar’s current P/E of 28x is described as good value in three different ways. It sits below an estimated fair P/E of 36.3x, below the US Specialized REITs industry average of 30.4x, and below a peer group average of 47.8x. If the market were to move closer to the fair ratio, it would imply more headroom than the current multiple suggests.

Result: Price-to-Earnings of 28x (UNDERVALUED)

However, this hinges on advertising demand and AFFO trends staying supportive, and any setback in digital billboard adoption or dividend expectations could quickly challenge that valuation story.

Another View: DCF Points To A Deeper Discount

If the 28x P/E suggests Lamar looks reasonably priced, the SWS DCF model tells a stronger story. With the stock at $151.42 and an estimated future cash flow value of $217.85, it screens as trading about 30.5% below that level, which is a wide gap for a mature REIT.

For you, that difference between a fair ratio based on earnings and a DCF signal based on cash flows raises a simple question: which lens should carry more weight when the next piece of news hits the stock price?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Lamar Advertising for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 49 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With all these signals pulling in different directions, the key question is how you weigh the trade off between upside potential and the risks on the table. Take a moment to review the full picture before you rush to a conclusion by checking out the 4 key rewards and 3 important warning signs

Looking for more investment ideas?

If Lamar has sharpened your focus on quality, do not stop here. Use these focused stock lists to uncover other opportunities that might suit your style.

• Target steady balance-sheet strength by scanning companies in the solid balance sheet and fundamentals stocks screener (46 results).
• Hunt for mispriced opportunities by checking out the 49 high quality undervalued stocks.
• Spot future standouts early by reviewing the screener containing 22 high quality undiscovered gems.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.