The Real Story: Lamar Advertising

Welcome to The Real Story. The purpose of this column is to help you increase your investment returns by selectively going against the consensus. I hope that The Real Story will enable you to take a critical view of investment research, news and prognostications. I will offer my contrarian opinion on stocks as well as issues that are important to investors. You may not always take my word as gospel, but it is my intent to get you to, at the very least, question the consensus.

Take, for example, the widespread misperception that Lamar Advertising (LAMR Quote) is currently in the sweet spot.

Wall Street likes the fact that outdoor advertising is difficult to ignore. You can't fast-forward past or change the dial on a billboard. According to the industry trade group the Outdoor Advertising Association of America, revenue grew 7.9% over the first nine months of 2005.

There is also optimism that digital billboards, and their higher margins and revenue, are the wave of the future. Additionally, new technologies for measuring an audience are being developed. Many believe these new tools will add credibility to the industry and perhaps boost prices.

True, Lamar is in a hot sector -- outdoor advertising -- but its execution is mediocre at best, it operates in ho-hum markets and it's valued like a dot-com circa 1999.

I believe this stock is worth closer to $30 than the current $46.

The Real Story

The bottom line with Lamar is the bottom line: Lamar has either missed its earnings forecast and/or warned in 17 out of the past 32 quarters. Lamar has missed or warned in three of the past four quarters. Not exactly the kind of consistency you want to see out of a stock trading at nearly 77 times expected 2006 earnings. No, that's not a typo; this stock is expensive.