US Out of Home Companies More Risky Than Stock Market

The 3 public US out of home companies are more risky that than that US stock market based on their betas.

The US Stock market beta:     1.00

Lamar beta:                                1.13

Outfront beta:                            1.14

Clear Channel Outdoor beta   1.52

Source: google finance

Investment analysts use beta to compute the volatility or risk of an stock.  Beta measures how much a single stock varies compared to a change in the stock market.  The stock market has a beta of 1.  A stock with a beta of 1.25 is more volatile than the market.  A 1% change in the market means a stock with a beta of 1.25 will change by 1.25%.  A stock with a beta of 0.75 is less volatile than the market.   A 1% change in the stock market means a 0.75 beta stock will change by 0.75%.

US Out of home stocks are more risky than the stock market due to the cyclical nature of advertising revenue.  Table 1 compares the revenue performance of Lamar, Clear Channel Outdoor and the US out of home industry during the 2007-2009 recession with the performance of two low beta utility stocks (PPL and ConEdison).  Out of home revenues declined two or three times as much as the low beta utility stock revenues.  Out of home revenue dropped 18% in 2009 while US GDP was flat

Table 1 

Revenue Performance of PPL, ConEd, Lamar and Clear Channel Outdoor during 2009 Recession

 

 

Although Clear Channel Outdoor is in the same industry as Outfront or Lamar, Clear Channel Outdoor stock has a much higher beta because Clear Channel’s leverage is much higher than Lamar or Outfront.  Higher leverage means that a stock will be much more risky because debt has a claim on the cashflow of a company which must be paid first before equity.

Table 2 Debt/Cashflow Ratios for Lamar, Outfront and Clear Channel Outdoor

 


Paid Advertisement

 

Print Friendly, PDF & Email

Comments are closed.