Lamar: Advertising Angst

By Eric Jackson
RealMoney Contributor
1/28/2010 12:45 PM EST
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Lamar Advertising Company (LAMR - commentary - Trade Now) is a Baton Rouge-based national outdoor advertising company (with some digital operations), which took a significant hit to its stock price after Lehman's collapse a year and a half ago. Investors sold the stock as it became clear that the economy -- and with it the ad market -- would slump on the heels of the collapse on Wall Street. The stock dropped from $37 in early September 2008 to $14 by the end of 2008.

In the dark days of early 2009, the stock continued its decline, dropping to a March 2009 low of $5.59. When confidence grew in the government's steps to stabilize the financial markets, the worst-performing shares over the preceding six months became the best-performing ones. Stocks like Lamar, which were seemingly near death, rallied aggressively. From Mar. 9, 2009, to Jan. 6, 2010, the stock rallied 500% to over $33. Today, the stock is down to $29.

What was, and still is most worrying about Lamar, though, is not its exposure to a form of advertising now much less in demand (outdoor billboards and posters) than web, TV, or radio, but its debt. Lamar was carrying about $2.7 billion in long- and short-term debt as of the end of September 2009. We'll find out where that tally currently stands in about three weeks, when it releases its fourth-quarter and full-year results. The company's debt is about equal to its market capitalization.

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Big Media: Big Yawn

The advertising market continues to be severely weak. Yet, the fact that we're not in freefall has caused some of the most beaten down and debt-laden companies to be bid up in the last 6 weeks.

Names such as Harley Davidson (HOG), Royal Carribbean (RCL), Cemex (CX) and Lamar Advertising (LAMR) are all up big since March 6th (65 - 167% vs. 25% for the S&P).

Comparatively speaking, Big Media's returns over that time period look more modest. Yes, CBS is up 70% since early March, but it's still trading at less than $6, giving it -- to put it in perspective -- only a little more than double the market cap of what it agreed to buy CNET for last year.

News Corp (NWS) and Viacom (VIA) are up 35% since early March but lag the S&P over the last 6 months. Disney's (DIS) return since March 6th is 2 points less than the S&P's. And Time Warner (TWX) stock price (not including the dividend from the spin-off of Time Warner Cable (TWC)) is only up +2% since the great Bull Run began 6 weeks ago. Memo to Jeff Bewkes: where did my rally go?

The truth is that, although Big Media has been pummeled since this bear market began, it was never really priced for extinction (except maybe CBS, which is why it has bounced back as much as it has) like some of the other consumer discretionary plays. This "rise from the dead" rally hasn't let them participate.

Big Media is left priced for a severe long-term painful future, which is probably accurate.
Therefore, it's a space I'm avoiding.

Position: None.

Originally published in RealMoney.com on 4/28/2009 11:30 AM EDT

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