Why Shares of Outfront Media Are Surging Today

What happened

Shares of billboard and transit outdoor advertising company Outfront Media (NYSE: OUT) jumped on Monday after the company announced that it had been recommended to be awarded a contract with the New York Metropolitan Transportation Authority. The stock was up about 12% as 11:30 a.m. EDT.

So what

Outfront has been recommended to be awarded transit concession agreements for subway, commuter rail, and buses, subject to the approval of the MTA's board of directors. The MTA is the largest public transit authority in the United States, carrying 11 million passengers per day on more than 800,000 vehicles.

The MTA plans to award new 10-year licenses for subway, commuter rail, and buses, with an option for the MTA to extend those contracts an additional five years. Outfront currently holds all three licenses.

This news comes after multiple short-term extensions of Outfront's previous agreements with the MTA. Rumors that Outfront could lose the MTA contract surfaced in September of last year, but the company was able to enter into a short-term agreement in November, followed by another short-term extension in May 2017. That second extension expires on Sept. 30.

Now what

Assuming Outfront is ultimately awarded all three licenses, this news removes a cloud hanging over the stock. In 2016, Outfront generated $225.1 million of revenue from its MTA licenses, representing nearly 15% of the company's total revenue.

Presumably, official news of Outfront's license wins should come before the current short-term extension expires on Sept. 30. Investors are already celebrating, boosting the stock to its highest level since early May. This news should also quell any concern about the company's dividend, which currently yields nearly 7%.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.