OUT - Outfront Media slumps ~15% after J.P. Morgan downgrades following Q2 results
2023-08-04 08:18:18 ET
J.P. Morgan downgraded Outfront Media ( NYSE: OUT ) to Neutral from Overweight and reduced the price target on the stock to $14 from $20 following the company's Q2 results .
J.P. Morgan's analysts said the company is seeing solid Billboard performance, but growth has not advanced at the speed they had expected and now see the potential for a weaker H2 2023.
The Transit business, mainly the MTA has been a drag on the U.S. Media segment. While Q2 results were in-line with modest expectations the outlook for the rest of the year was materially worse as ridership, advertising perception and costs continue to increase, the analysts added.
The firm noted that Outfront Media now expects U.S. Billboard OIBDA of ~$500M for 2023 and US Transit OIBDA loss of $15M to 20M. Other OIBIDA and corporate costs are unchanged, which implies an outlook range of $450M to 460M for consolidated OIBDA.
The firm models consolidated OIBDA of $450.5M, a decline of 4.6% Y/Y, on a 24.7% margin.
The analysts said that they see value in the U.S. Billboard business but the drag is from the MTA and other Transit businesses. The company's management expects to start discussions with the MTA and other transit authorities to renegotiate agreeemnts which had assumptions, that are materially lower now and unprofitable for the company.
While the potential for a positive outcome could lead to upside, the uncertainty around the timing and benefit to Outfront Media are hard to rely on currently, according to the analysts.
The analysts expect continued improvement in both billboard and transit revenue, but with quarter to quarter volatility. Near-term they see weakness in national advertising and now anticipate a slower growth rate environment for national advertisement spending.
For the longer term, the firm likes the company's growth story with increasing digital billboard conversions and technology initiatives. Meanwhile, the Transit business continues to suffer from low ridership and advertising revenue growth, but high costs which is steering little to negative margins that drags the overall business.
The analysts are Neutral on the stock and are waiting for an acceleration in the Billboard business and positive margins in Transit.
OUT -15.44% to $12.27 premarket Aug. 4
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Outfront Media slumps ~15% after J.P. Morgan downgrades following Q2 results