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Loop Capital Initiates Outfront Media At Hold, Advises To Avoid 'Sloppy' Earnings

'Sloppy' Outfront Earnings Leaves Loop Capital Sidelined|Initiated At Hold

Although the sale of the Latin American business has created a more simplified structure for Outfront Media Inc OUT 4.73%, Loop Capital’s David W. Miller noted that the company’s earnings releases have been “sloppy” of late. Given the current market environment, the analyst prefers to remain on the sidelines.

Miller initiated coverage of Outfront Media with a Hold rating and price target of $23.

Margin Concerns

The analyst mentioned that Outfront Media’s margins were meaningfully below its top performing peer, Lamar Advertising Co LAMR 1.82%.

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CBS Corporation CBS 0.19% had spun off its outdoor unit into Outfront Media in 2014 in order to lower CBS’ overall exposure to the advertising cycle and due to the Outdoor unit representing a drag on the EBITDA margins at that time.

“Appropriately, the margin theme still holds true, with company-wide EBITDA margins for OUT coming in at 30.6 percent for Q2. In contrast, rival Lamar, reported Q2 net EBITDA margins of 43.8 percent, up 70 bps YOY,” Miller stated.

Reasons For Muted Margins

The analyst believes that one of the reasons for the muted margin profile is that Outfront Media is focused heavily on its transit business, including signage at train stations, bus terminals, subways and airports.

“While the transit business tends to be fairly consistent in revenue generation, it is what we like to call a "dis-enhanced" business because of such a large revenue-share quotient with the municipality,” Miller explained.

Another reason for the lower margins is that the company operates almost completely in the big markets, where competition is intense due to several private operators vying for business.

In addition, while the sale of the Latin American business has simplified corporate structure, the analyst questioned the timing of the deal, since “it appears OUT sold right at the bottom of the trajectory of many Lat-Am economies.”

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DateFirmActionFromTo
Sep 2016Loop Capital Initiates Coverage onHold
Jul 2016WedbushInitiates Coverage onNeutral
Oct 2015Goldman SachsUpgradesBuy

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