Lamar Advertising Co (LAMR), CBS Corporation (CBS): How Market Leadership Enables This Company to Earn Outsized Profits

Investors seeking safety of principle and long-term out-performance would do well to only buy companies that dominate their markets. Market leaders often earn outsized profits and dictate what the rest of the market participants can or cannot do. This sets the market leader up for long-term success.

Market leaders include well-known companies like The Coca-Cola Company (NYSE:KO) in carbonated beverages, PepsiCo, Inc. (NYSE:PEP) in salty snacks, and American Express Company (NYSE:AXP) in consumer credit. Each of these companies exploits its market position to keep the competition in check and earn outsized returns on capital.

However, household names are not the only market leaders that earn high and stable profits. A lesser-known company, Lamar Advertising Co (NASDAQ:LAMR), uses its monopolistic positions in local markets in a way that would make Wal-Mart Stores, Inc. (NYSE:WMT) blush.

All competition is local

Lamar Advertising Co (NASDAQ:LAMR) benefits from federal legislation limiting the number of billboards that may be built along interstate highways. Basically, it is really hard to build a new billboard these days, so established players like Lamar Advertising Co (NASDAQ:LAMR) own a scarce resource.

Of course, Lamar Advertising Co (NASDAQ:LAMR)’s chief competitors — CBS Corporation (NYSE:CBS) and Clear Channel Outdoor Holdings, Inc. (NYSE:CCO) — benefit from this as well. What’s more, both of these companies own more billboards and are concentrated in higher-traffic markets than Lamar Advertising Co (NASDAQ:LAMR).

However, Lamar Advertising Co (NASDAQ:LAMR) has an enormous advantage due to its dominance of the markets in which it competes. Clear Channel and CBS Corporation (NYSE:CBS) are concentrated in large metropolitan areas — markets in which billboards are ubiquitous and competition is fierce.

Lamar, on the other hand, is concentrated in smaller markets where only a handful of regional players compete for advertisers. Lamar takes advantage of its national economies of scale to undercut regional competitors while earning higher margins than it would in fiercely-competitive major metropolitan areas. As a result, the company routinely earns higher margins than Clear Channel and CBS.

As the only nationwide player in many of its markets, Lamar can easily defend its market share by undercutting aggressive rivals and driving them from the market before raising prices again. Its series of local near-monopolies will enable the company to continue out-earning its larger competitors for years to come.