A 13G filed with the SEC has disclosed that billionaire Steve Cohen’s SAC Capital Advisors owns 4.2 million shares of Lamar Advertising Co (NASDAQ:LAMR), giving the fund a 5.3% stake in the $4.1 billion market cap outdoor advertising company with a primary focus on billboard advertising. We track SAC’s quarterly 13F filings alongside those of hundreds of other hedge funds as part of our work developing investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year). According to our database, the fund owned 1.8 million shares at the beginning of April (see Cohen’s stock picks over time). Southeastern Asset Management, a mutual fund managed by billionaire Mason Hawkins, reported a position of 4.4 million shares in its 13F for the first quarter of 2013 (find Southeastern’s favorite stocks).
Last quarter Lamar Advertising Co (NASDAQ:LAMR)’s revenues rose 6% compared to the first quarter of 2012, though operating income showed very little change as SGA expenses picked up considerably. Net losses were a little over $6 million, with Q1 generally being poor for Lamar. Trailing earnings are currently very low compared to the company’s market capitalization, and even with Wall Street analysts expecting a large increase in earnings per share over the next year and a half the forward P/E is 45.
The buy case for Lamar Advertising Co (NASDAQ:LAMR) for some time, however, has been the possibility of the company converting to a real estate investment trust. Real estate investment trusts receive favorable tax treatment conditional on distributing a large share of their taxable income to shareholders; as such , the conversion process is more tax efficient and generally also commits companies to pay a decent dividend yield (a factor which is in high demand in the current low interest rate environment). As it happens, an 8-K filed on June 6th by Iron Mountain revealed that the IRS may revise its working definition of “real estate” for the REIT approval process, a move which may signal that the agency will get tougher on prospective applicants such as Lamar seeking to take advantage of REITs’ favorable tax status. The stock price was down 4% as of this writing.
Lamar Advertising Co (NASDAQ:LAMR)’s closest peer is Clear Channel Outdoor Holdings, Inc. (NYSE:CCO), which manages billboards, street furniture displays, and transit advertising displays. This company is actually unprofitable on a trailing basis, with the sell-side expecting net losses this year as well. With revenue flat in the first quarter of 2013 versus a year earlier, we would avoid the stock.