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Should You Hold OUTFRONT (OUT) Stock in Your Portfolio Now?


OUTFRONT Media Inc.’s OUT superior portfolio of billboard, transit and digital displays in high traffic regions and prime iconic locations has a national audience reach and this brings numerous advantages to its advertisers. However, high level of indebtedness lowers its financial flexibility, which is a concern.

Specifically, the company has multiple growth drivers, including acquisitions, billboard conversions, cell-site leasing and transit franchise assets. These strategic moves will help improve its performance and stoke long-term growth.

Notably, OUTFRONT Media has been ramping up investments in digital-billboard portfolio and focusing on billboard conversions that have driven year-over-year growth of its digital revenues. In fact, U.S digital billboard count increased to 957 as of Dec 31, 2018, from 822 in the previous year. Further, in 2018, OUTFRONT Media converted and built 88 digital billboards. As the company aims to accelerate digital conversions in 2019, revenue growth is expected to continue in the upcoming quarters as well.

It is also leveraging on existing 4G and emerging 5G opportunities, and is leasing vacant spaces on its assets to wireless carriers. This is a strategic fit as it can accommodate 1-3 wireless carriers per site, requires no additional capital expenditures, and provides fixed, monthly rental income under long-term leases.

OUTFRONT Media has also been active on the acquisition front with strategic buyouts aimed at portfolio enhancement. It anticipates closing the acquisition of a digital display portfolio in Atlanta in second-quarter 2019. Furthermore, the company’s acquisitions amounted to $7 million in 2018 and $113.8 million in 2017. These efforts are expected to drive inorganic growth and complement its growth strategy.

Encouraging growth in out-of-home (OOH) advertising is also opening up opportunities for the company to capitalize on this trend and provide a unique technology platform to marketers to help draw more audiences and give real-time audience data.

However, OUTFRONT Media generally depends on borrowings for its acquisitions and capital requirements. This has inflated its debt levels to nearly $2.3 billion as of Dec 31, 2018. Such high level of indebtedness lowers financial flexibility and impacts the company’s ability to fund acquisitions. A rising interest-rate environment further magnifies the concern, flaring up interest expenses and impeding bottom-line growth.

Moreover, stiff competition from other outdoor advertisers for customers, display locations and structures remains a concern. It also competes with other media, including conventional platforms such as television, radio, print media, direct mail marketers and online, mobile & social media platforms. This is anticipated to affect the company’s pricing power in the market.

Also, there is uncertainty in business as the OOH advertising industry has to comply with regulations at the international, federal, state and local levels. These regulations, which may change frequently, have a deep impact on the outdoor advertising industry and OUTFRONT Media’s business.

Shares of this Zacks #3 (Hold) Ranked company have outperformed its industry over the past six months, gaining 11.5% compared to the industry’s rally of 5.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Key Picks

Better-ranked stocks from the REIT space are Terreno Realty Corporation TRNO, Alexandria Real Estate Equities ARE and Boston Properties, Inc. BXP. All three stocks carry a Zacks Rank of 2 (Buy).

Terreno Realty’s funds from operations (FFO) per share estimates for first-quarter 2019 remained unchanged at $1.32, over the last month. Further, it has a long-term growth rate of 8.40%.

Alexandria Real Estate Equities’ Zacks Consensus Estimate for 2019 FFO per share has been marginally revised upward to $6.96 over the last month. Also, it has a long-term growth rate of 4.40%.

Boston Properties’ FFO per share estimate for the ongoing year has been revised marginally north to $6.91 in 30 days’ time. Additionally, it has a long-term growth rate of 6.20%.

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