HomeMost PopularInvestingIs American Tower (AMT) a Solid Bet for Your Portfolio?

Is American Tower (AMT) a Solid Bet for Your Portfolio?

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The American Tower Corporation (AMT) is poised for growth with its extensive and geographically diversified communication real estate portfolio. This positions the company well to benefit from the increasing capital spending by wireless carriers on the growing demand arising from global 4G and 5G deployment efforts.

The company’s expansionary initiatives and disciplined capital-allocation strategy augur well for its long-term growth. However, it is essential to note that customer concentration and high interest rates pose key concerns for the company.

What’s Driving Its Growth?

With the evolution of mobile technology, such as 4G and 5G networks, and the surge in bandwidth-intensive applications, there has been a significant global increase in mobile data usage. The growing demand for network-intensive applications, including video conferencing, cloud services, and hybrid-working scenarios, is expected to fuel this growth further.

This upward trend has led to a surge in capital spending by wireless carriers, driven by the incremental demand from global 4G and 5G deployment efforts, expanding wireless penetration, and spectrum auctions. Consequently, there is a heightened demand for AMT’s wireless communication infrastructure. This positive trajectory is expected to persist in the foreseeable future, driving robust leasing activity and increasing demand for the company’s assets.

American Tower has demonstrated a strong track record of delivering robust performance due to the robust demand for its global macro-tower-oriented asset base. The company has witnessed significant growth in key financial metrics while continuing to expand its platform.

In the third quarter of 2023, the company recorded healthy year-over-year organic tenant billings growth of 6.3% and total tenant billings growth of 7.3%. Additionally, in the nine months ended Sep 30, 2023, the company saw a 5.2% year-over-year increase in revenues from the property segment and a 7.9% rise in adjusted EBITDA.

Between 2012 and 2022, American Tower’s revenues from the property segment and adjusted EBITDA grew at compound annual growth rates (CAGRs) of 14.1% and 13.4%, respectively. The company’s management projects property revenues and adjusted EBITDA growth of 4.5% and 6.1%, respectively, at the midpoint for 2023, indicating continued strong performance amid secular growth trends in the wireless industry.

To capitalize on the industry’s secular trends, AMT is consistently focusing on macro-tower investment opportunities and expanding its presence in global markets. The company has built over 45,000 international sites since it started expanding internationally. Of these sites, approximately 8,000 have been established in Africa, in response to carriers’ ongoing investments in network coverage and densification needs. During the nine months ended Sep 30, 2023, the company acquired 69 communications sites and other communications infrastructure assets in the United States, Canada, France, Poland, and Spain for $65.7 million.

In addition to boasting a robust operating platform, American Tower has ample liquidity to support its debt servicing. Its consistent adjusted EBITDA margins and revenue growth, as well as its favorable return on invested capital, reinforce the strength of its core business and its capacity to manage its near-term obligations.

The company’s net leverage ratio for the third quarter of 2023 was 5.0. As of Sep 30, 2023, it had $9.7 billion in total liquidity. With a weighted average remaining debt term of 6.1 years, it possesses strong financial flexibility.

American Tower has adopted a disciplined capital allocation strategy and remains committed to enhancing shareholder value through regular dividend increases. In September 2023, it announced a 3.2% increase in its quarterly dividend on the company’s common stock to $1.62 per share from $1.57, indicating consistent growth in quarterly dividends since 2012, with an average annual dividend per share growth of over 20%. Over the last five years, the company has raised its dividend 19 times, achieving an annualized dividend growth rate of 15.10%, which is attractive to income investors and provides a stable income stream. Check American Tower’s dividend history here.

What are the Deterrents?

Despite its promising outlook, American Tower faces challenges, particularly in terms of customer concentration and high interest rates.

Customer concentration is notably high for American Tower, with the company’s top three customers in terms of property revenues for the third quarter of 2023 being T-Mobile (17%), AT&T (13%), and Verizon Wireless (12%). The potential loss of any of these customers, their consolidation, or decreased network spending could significantly impact the company’s top line.

Furthermore, the elevated churn in emerging markets where the company operates is a cause for concern. The merger between T-Mobile and Sprint, which was completed in April 2020, resulted in tower site overlap for American Tower. During the nine months ended Sep 30, 2023, the churn stood at approximately 3% of its tenant billings, primarily driven by churn in its U.S. & Canada property segment. Given the contractual lease cancellations and non-renewals by T-Mobile, including legacy Sprint Corporation leases, management foresees that the churn rate in its U.S. & Canada property segment will remain elevated until 2025.

Another factor impacting the company is the high interest rate environment. Elevated interest rates translate to higher borrowing costs for American Tower, potentially impacting its ability to acquire or develop real estate. The company bears a substantial debt burden, with its total consolidated debt as of Sep 30, 2023, amounting to approximately $38.6 billion. Additionally, with high interest rates, the dividend payout may appear less appealing compared to the yields on fixed-income and money market accounts.

Although AMT offers investment potential, investors should consider the risks associated with customer concentration and the prevailing high-interest rate environment.

Stocks to Watch

Within the REIT sector, some better-placed stocks include Welltower (WELL), Iron Mountain Incorporated (IRM), and Boston Properties (BXP), each carrying a Zacks Rank #2 (Buy). You can view the complete list of Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Welltower’s current-year funds from operations (FFO) per share has slightly increased over the past month to $3.57.

Similarly, the Zacks Consensus Estimate for Iron Mountain’s 2023 FFO per share has marginally risen over the past three months to $3.97.

Furthermore, the Zacks Consensus Estimate for Boston Properties’ ongoing year’s FFO per share has experienced a slight uptick over the past two months to $7.30.

Note: In the context of earnings presented in this write-up, funds from operations (FFO) — a widely used metric to gauge the performance of REITs—is referred to.

For comprehensive stock insights and detailed analysis, you can access the complete article by clicking here.

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For additional insights and in-depth analysis on American Tower Corporation (AMT) and other potential investment prospects, visit Zacks Investment Research.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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