Wells Fargo resumed coverage of Outfront Media (NYSE:OUT), assigning the stock an Overweight rating and setting a price target of $22.00. The firm indicated a positive outlook on the company, driven by confidence in the Transit sector's recovery, which is expected to contribute to Outfront Media's earnings and help narrow the valuation gap with its peer, Lamar Advertising Company (NASDAQ:LAMR).
The analyst pointed to the uneven recovery in the Transit segment as the main reason for Outfront Media's wider valuation gap compared to LAMR. Despite the skepticism of many investors towards this segment, Wells Fargo views Transit as transitioning from a hindrance to a beneficial factor for the company.
The firm emphasizes that the improvement in the Transit sector could remove a significant overhang on Outfront Media's valuation.
Additionally, the bullish stance on Outfront Media is supported by the potential for programmatic advertising to drive sustained revenue growth, particularly through the New York Metropolitan Transportation Authority (NY MTA) contract.
Wells Fargo's optimism is also reflected in their anticipation of an earnings inflection for Outfront Media.
Wells Fargo's price target does not include potential Transit revenues per share. However, the firm suggests that the mere alleviation of negative perceptions surrounding the Transit segment could lead to a revaluation of Outfront Media's stock.
The absence of negative factors is seen as a positive for the company's valuation, indicating a potential upside for investors.
Outfront Media has been making significant strides in its financial performance. The company recently reported its second-quarter earnings for 2024, showing a steady growth trend, particularly in its U.S. Media segment. The sector saw a 4% increase in revenue, driven by a strong performance in the billboard and transit sectors.
The company also reported a nearly 10% increase in adjusted OIBDA for U.S. Media and a 9% growth in consolidated AFFO.
In addition to these positive earnings results, Outfront Media also saw an increase in its digital revenues by 10%, which now constitute over a third of total revenues. According to TD Cowen, these developments have influenced the firm's decision to raise Outfront's price target from $16.00 to $17.00, while maintaining a Hold rating on the stock.
This optimism is based on the company's upbeat outlook for the second half of 2024, with a focus on growth in digital and transit areas.
Furthermore, Outfront Media's management is expecting mid-single-digit revenue growth in the next quarter. They have also indicated that the company's Board of Directors may opt to distribute a portion of the dividend from the sale of its Canadian business in the form of stock, allowing the company to accelerate debt repayment.
InvestingPro Insights
As Outfront Media (NYSE:OUT) garners attention with Wells Fargo's Overweight rating and a price target of $22.00, real-time data from InvestingPro provides additional context to the company's financial health and performance. Outfront Media's market capitalization stands at $2.93 billion, reflecting its position within the advertising industry. The company's price-to-earnings (P/E) ratio is currently 13.54, suggesting that the stock is trading at a lower earnings multiple compared to some of its peers. This could indicate an attractive valuation for investors seeking entry points into the sector.
InvestingPro Tips highlight that Outfront Media is expected to experience net income growth this year, which could be a catalyst for future stock appreciation. Furthermore, the company has been trading near its 52-week high, with a price percentage of the 52-week high at 97.25%, signaling strong recent performance and possibly investor confidence in its prospects. For those interested in dividend income, the company offers a compelling dividend yield of 6.8%, providing an additional incentive for income-focused investors.
For readers looking to delve deeper into Outfront Media's performance and potential investment opportunities, additional InvestingPro Tips are available, offering a comprehensive analysis of the company's financials and market position. With a total of 12 more tips listed on InvestingPro, investors can gain a more nuanced understanding of the stock's potential. To explore these insights, visit the dedicated page for Outfront Media at InvestingPro.
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