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Factors to Impact American Tower (AMT) This Earnings Season

Zacks Equity Research

American Tower Corp. AMT is scheduled to release second-quarter 2019 results before the opening bell on Jul 31. The company’s results will likely reflect year-over-year rise in its funds from operations (FFO) per share and revenues.

In the last reported quarter, this wireless communications towers operator missed its adjusted funds from operations (AFFO) estimates by 1.08%. Nonetheless, the company generated total revenues of $1.81 billion, outpacing the Zacks Consensus Estimate of $1.80 billion.

Over the trailing four quarters, the company surpassed estimates on three occasions and missed in the other. It delivered an average positive surprise of 2.92% during this period.

American Tower Corporation (REIT) Price and EPS Surprise

American Tower Corporation (REIT) Price and EPS Surprise

American Tower Corporation (REIT) price-eps-surprise | American Tower Corporation (REIT) Quote

Let’s see how things are shaping up prior to this announcement.

Factors at Play

In a bid to benefit from existing growth opportunities in the global wireless industry, American Tower has made reasonable efforts to expand its footprint in the United States and international markets.  

In May, the company signed a definitive agreement to acquire Eaton Towers Holding Limited — owner and operator of nearly 5,500 communications sites across five African markets. Purchase consideration for the buyout amounted to nearly $1.85 billion, including American Tower’s assumption of Eaton Towers’ existing debt.

Amid upcoming deployment of 4G mobile-data technology in Africa, the transaction will expand the company’s footprint in the region, positioning it sturdily for growth. Further, the acquired assets are expected to generate nearly $260 million in property revenues and around $165 million in gross margin, at current exchange rates, in the first full year, in American Tower’s portfolio.

Hence, geographic revenues from the company’s international portfolio are expected to improve year over year to $801 million in the second quarter. In addition, the Zacks Consensus Estimate for second-quarter gross margin from international rental and management segment is expected to be up to $447 million.

Moreover, tower organic growth continues to be driven by increase in wireless capital spending. Specifically, increased use of mobile data is fueling demand for space on the company’s telecom towers. Also, with higher investments in 4G and the upcoming 5G technology, wireless carriers are densifying their network. This will likely enable American Tower to witness splendid leasing activity and organic tenant billings growth in the quarter under review.

In fact, the Zacks Consensus Estimate for second-quarter 2019 revenues is pegged at $1.84 billion, indicating year-over-year growth of 3.2%.  

However, consolidation in the telecom industry is a concern for American Tower. Specifically, the Indian carrier consolidation-driven churn might impact the company’s Asian property segment’s performance. In fact, the Zacks Consensus Estimate for second-quarter revenues from Asian operations is projected to decline 6.5% year over year to $288 million.

Also, the proposed merger between T-Mobile US Inc. TMUS and Sprint Corp. S is anticipated to decrease capital spending by these companies. Since American Tower’s infrastructure is used to install their cellular networks, the merger will eliminate many overlapping towers. This is predicted to adversely impact the company’s lease rentals.  

Lastly, American Tower’s activities during the quarter could not gain adequate analyst confidence. In fact, the Zacks Consensus Estimate for second-quarter FFO per share remained unchanged at $1.93, over the past month. Nonetheless, it represents year-over-year growth of 1.6%.

Earnings Whispers

Here is what our quantitative model predicts:

American Tower does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The company’s Earnings ESP is 0.00%.

Zacks Rank: It currently carries a Zacks Rank of 2 (Buy) which increases the predictive power of ESP. However, we also need a positive ESP to be confident of a positive surprise.

Stock That Warrants a Look

Corporate Office Properties Trust OFC, slated to report quarterly figures on Jul 29, has an Earnings ESP of +0.66% and carries a Zacks Rank of 3, currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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