American Tower Corporation’s AMT extensive and geographically diversified communication real estate portfolio is well-poised to gain from the rise in capital spending by wireless carriers on the incremental demand from global 4G and 5G deployment efforts, growing wireless penetration and spectrum auctions.
Moreover, AMT has a resilient and stable business model. It generates most of its revenues from non-cancellable, long-term (typically 5-10 years) tower leases with major wireless carriers and has multiple renewal period options. This assures stable revenue generation for the company.
Shares of AMT, currently carrying a Zacks Rank #3 (Hold), have lost 9.6% in the quarter-to-date period compared with its industry’s fall of 6.4%. However, given the secular growth trends in the wireless industry and its robust fundamentals, the stock is likely to keep performing well in the quarters ahead. Hence the dip offers a good entry point.
Image Source: Zacks Investment Research
American Tower has a solid track of delivering a healthy performance due to robust demand for its global macro tower-oriented asset base. It has witnessed strong growth in key financial metrics while continuing platform expansion. Between 2012 and 2022, AMT’s revenues from the Property segment and adjusted EBITDA grew at CAGRs of 14.1% and 13.4%, respectively.
This healthy performance is expected to continue in 2023, with management projecting property revenues and adjusted EBITDA to rise 2.9% and 4.1%, respectively, at the midpoint. We expect property revenues and adjusted EBITDA to increase 2.3% and 4.2%, respectively. In 2024, we estimate property revenues and adjusted EBITDA to report an increase of 4.1% and 9.1%, respectively.
To capitalize on the tailwinds, American Tower continues to focus on macro-tower investment opportunities and expansionary efforts across global markets. In 2022, American Tower registered record organic growth complemented by the construction of nearly 7,000 sites, of which, 2,300 were built in fourth-quarter 2022. This marked the highest level over the past eight quarters.
We expect an increase of 1.9%, 4% and 4.3% in 2023, 2024 and 2025, respectively, in total International property revenues.
American Tower is also strengthening its data center assets through acquisitions, which is encouraging.
On the balance sheet front, AMT exited 2022 with total liquidity of $7.1 billion and net leverage ratio of 5.4. Moreover, its investment-grade credit ratings of BBB- and Baa3 with stable outlook from Standard & Poor’s and Moody’s, respectively, enable the company to borrow at a favorable rate.
In addition, its trailing 12-month return on equity (ROE) is 15.80% compared with the industry’s average of 3.60%. This reflects that the company is more efficient in using shareholders’ funds than its peers.
Solid dividend payouts are arguably the biggest enticements for REIT shareholders, and American Tower remains committed to that. In the last five years, AMT has increased its dividend 20 times and its five-year annualized dividend growth rate is 17.43%. Such efforts boost investors’ confidence in the stock.
Nonetheless, T-Mobile, AT&T and Verizon Wireless are the top three customers for American Tower in terms of total revenues for 2022, contributing 18%, 17% and 11%, respectively. The loss of any of these customers, consolidation among them or reduction in network spending might adversely impact the company’s top line.
Also, increasing interest rates are likely to increase borrowing costs, affecting the company’s ability to purchase or develop real estate.
Stocks to Consider
Some better-ranked stocks from the REIT sector are Alexandria Real Estate Equities ARE, Terreno Realty TRNO and Service Properties Trust SVC. While Alexandria Real Estate and Terreno Realty currently carry a Zacks Rank #2 (Buy), Service Properties Trust sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Alexandria Real Estate’s 2023 FFO per share is pegged at $8.95.
The Zacks Consensus Estimate for Terreno Realty’s current-year FFO per share is pegged at $2.17.
The Zacks Consensus Estimate for Service Properties Trust’s 2023 FFO per share is pegged at $1.89.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report