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Bear of the Day: Outfront Media (OUT)


Wednesday was a brutal day for U.S. stocks, with major indexes suffering their worst day since the February selloff. This week’s selling has been abrupt, but predictable as yields and rates rise. Things still feel healthy, and I think a rebound will come sooner rather than later. That said, I would recommend continuing to avoid sluggish underperformers such as Outfront Media (OUT).

Outfront Media is a REIT focused on out-of-home advertising structures. In other words, this is a billboard company—although it does have exposure to bulletins, wallscapes, and other outdoor advertising.

The stock is currently holding a Zacks Rank #5 (Strong Sell). Shares have underperformed their broader industry this year, as the advertising segment of the REIT market has faced challenging conditions. This segment is also rather competitive, and any loss in market share would just exacerbate issues for Outfront right now.

One thing I really don’t like about this stock at the moment is simply its performance chart:

An extended chart would show you that this stock has struggled to generate extended periods of momentum over the past several years, but a one-year view shows enough for me to be concerned as well.

What I see here is at least a pair of rejected rallies. Traders looked to have found a higher bottom when the first rally ended with a selloff in August, but a second rally was also rejected, sending the stock barreling back toward its April lows.

According to our latest Zacks Consensus Estimates, analysts expect Outfront to finish the current fiscal year with earnings and revenue growth of just 2.5% and 2.7%, respectively.

The other big issue here is that REITs are rate sensitive, and those with higher debt loads are going to face headwinds in this rising rate environment. Outfront had $2.3 billion in debt through the first half of the year, an amount nearly equal to its current market cap.

This is not to say that all REITs should be avoided right now, however. One way to spot a company in position to overcome rising rates would be to identify stocks with rising earnings estimates. Right now, our “REIT and Equity Trust – Other” has two Zacks Rank #1 (Strong Buy) stocks: Gaming and Leisure Properties (GLPI) and Innovative Industrial Properties (IIPR).

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