The Real Story: Lamar Advertising

New Tech, Moving Slowly

Many on the Street believe that digital billboards will stuff outdoor companies full of cash, and there's no doubt the digital displays can bring in many times more revenue than an ordinary board -- and with higher margins to boot.

CEO Kevin Reilly said he would "build 1,000 digital boards today" and "spend every nickel" on smart boards if they had a place to put them. The problem is digital billboards face the same and in some cases even more severe restrictions as regular boards. Digital display manufacturers such as Daktronics have cautioned investors not to expect the boards to add meaningfully to their growth.

Advertisers have been clamoring for an effective tool to measure their outdoor messages' reach. Nielsen Media Research just completed a study in Chicago with the "Npod," a GPS-like device that tracks when people pass billboards. However, it's a long way from being rolled out. One problem is that there is no definitive source for where billboards are located throughout the nation. In a large city such as Chicago, that information may be available. However, in more remote locales, where Lamar often operates, the data are harder to come by. The industry will have to encounter an unprecedented level of cooperation among operators, if this initiative is going to work.

With 10 buys or strong buys vs. only three holds, Lamar appears to be a perfect candidate for a contrarian stance. The stock could decline sharply if the host of problems outlined above becomes more evident or if Wall Street analysts end their love affair with the company.

Denouement

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