Warren Buffett Just Bought This Advertising Stock: Should You?

Berkshire Hathaway built a meaningful stake in Lamar Advertising—about $141.9 million last summer and an additional 32,603 shares last quarter—underscoring the appeal of its commanding outdoor-advertising franchise: roughly 360,000 displays (including ~159,000 billboards), more than the next 10 competitors combined, and a regulatory moat reinforced by the Highway Beautification Act. Lamar derives 88% of revenue from billboards, serves a highly diversified blue‑chip client base (no single customer >2%), and has shown resilience in downturns (revenue fell ~11% in 2008–09 and 10.8% in 2020 but recovered by 2022; acquisition‑adjusted revenue rose 2.9% last quarter). Key risks include REIT dividend dependence (4.7% yield and a 2020 dividend cut that halved the payout), a high debt‑to‑equity ratio (~457%) though management has completed ~$1.1 billion of refinancing ahead of potential rate relief, and a P/E (~29.5) in line with the S&P; the article’s analyst argues these factors make Lamar an attractive income and growth buy despite leverage-sensitive risk.

Analysis

Berkshire Hathaway established a meaningful position in Lamar Advertising last summer with a $141.9 million investment and added 32,603 shares last quarter, underscoring confidence in Lamar’s scale: roughly 360,000 displays including about 159,000 billboards and a footprint larger than the next 10 competitors combined. The company benefits from a regulatory moat driven by the Highway Beautification Act, giving it entrenched locations and pricing power with blue‑chip clients such as GEICO, Progressive, JPMorgan Chase, Coca‑Cola and Johnson & Johnson.

Operationally, billboards account for 88% of revenue and Lamar has demonstrated resilience in severe downturns (revenue down ~11% in 2008–09 and 10.8% in 2020) with acquisition‑adjusted revenue up 2.9% last quarter and revenues recovering to new highs by 2022. The stock yields 4.7% as a REIT and trades at a P/E of ~29.5, in line with the S&P 500, making income attractive relative to the market.

Key risks are leverage and dividend sensitivity: a debt‑to‑equity ratio near 457% is elevated, though management completed approximately $1.1 billion of refinancing last fall and would benefit from lower interest rates; the 2020 dividend cut (50% reduction) shows dividends are not immune to cash‑flow stress. Investors should balance the company’s durable franchise and client diversification against refinancing execution and interest‑rate trajectories that materially affect dividend sustainability and equity downside.

Key Decisions for Investors

• Consider a modest, income‑oriented buy or add‑on position given a 4.7% yield, strong regulatory moat and 2.9% acquisition‑adjusted revenue growth last quarter, but size exposure conservatively because leverage is high
• Monitor debt metrics, interest expense and refinancing execution (including the ~$1.1bn completed last fall) and require visible improvement in financing costs or coverage ratios before increasing allocations
• Implement downside risk management — stagger purchases on weakness or use position limits/hedges — because a repeat of the 2020 dividend cut or rising rates could trigger large share declines