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Here's How American Tower (AMT) Looks Ahead of Q3 Earnings

Zacks Equity Research
·6 min read

American Tower Corp. AMT is scheduled to release third-quarter 2020 results before the opening bell on Oct 29. The company’s results are expected to reflect year-over-year increases in revenues and funds from operations (FFO) per share.

In the last reported quarter, this operator of wireless communications towers surpassed adjusted funds from operations (AFFO) estimates by 0.9%. The company witnessed strong organic tenant billing growth. However, results were adversely impacted by a decline in revenues in the Asia and Latin America property segments.

Over the trailing four quarters, it surpassed estimates on all four occasions, the average surprise being 2.4%.

American Tower Corporation REIT Price and EPS Surprise

 

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 have shaped up prior to this announcement.

Amid the rollout of the latest technologies and significant growth in the overall network utilization, carriers continue to spend capital to increase coverage and capacity in American Tower markets. Moreover, remote working and online purchases amid the pandemic are likely to have increased the demand for cellular data.

This has acted as a catalyst for cell tower REITs that play a pivotal role in providing critical infrastructures needed for a seamless connection. These narratives indicate a healthy domestic leasing environment in the third quarter for the company.

Further, the company has master lease agreements with major telecom companies. Such leases provide revenue and earnings stability. Also, American Tower is likely to have reaped benefits from its efforts to extend the platform in a number of international locations. Through such moves, it has likely grown its tenancy and cash flows.

In fact, the expansion of the core tower business is likely to have enabled the company to deliver organic growth in site rental revenues and organic tenant billings during the July-September period.

The Zacks Consensus Estimate for third-quarter 2020 revenues is pegged at $1.97 billion, indicating a marginal rise of 0.7% from the year-ago reported figure. This is expected to have been supported by growth in its property segment’s revenues. In fact, the Zacks Consensus Estimate for the property segment’s revenues is pinned at $1.9 billion, indicating growth of 53% from the prior year’s reported figure.

Additionally, efficiencies throughout the business are anticipated to have driven margin improvements. This along with probable higher revenues in the U.S. property segment is expected to increase U.S. property gross margin by 1.8% to $904 million.

However, American Tower’s expansion efforts in emerging markets are expected to have not been beneficial as tower operations in such markets are not as profitable as that in the mature U.S. market. Moreover, given the pandemic, the overall leasing environment in international markets is expected to have remained challenging. In fact, the consensus estimate for third-quarter revenues from international operations is pinned at $832 million, indicating a marginal increase from the year-ago reported figure.

Moreover, the decommissioning of sites due to the merger between Sprint and T-Mobile U.S. Inc. is expected to have affected property revenue growth in the third quarter.

American Tower’s activities during the quarter were inadequate to gain adequate analyst confidence. Notably, the Zacks Consensus Estimate for third-quarter FFO per share has been unchanged at $2.08 over the past month. Nonetheless, it suggests a year-over-year increase of 4%.

Developments During Q3

In mid-September, American Tower secured a master lease agreement with its tenant T-Mobile. The lease provides revenue-growth visibility for American Tower. Hence, it has updated its 2020 outlook.

In fact, with an average non-cancellable term of nearly 15 years on leases, the lease will enable American Tower to secure around $17 billion in additional contractually-committed revenues over the said term. Moreover, the lease is expected to increase 2020 straight-line revenues by $95 million.

The company has therefore updated the outlook for the current year. Accordingly, it expects total property revenues of $7,750-$7,880 million, as compared with $7,655-$7,785 million mentioned earlier.

Net income is estimated to be $1,845-$1,925 million, up from the previously stated $1750-$1830 million. Moreover, adjusted EBITDA is expected to lie between $4,985 million and $5,065 million, higher than $4,890-$4,970 million stated earlier.

Here is what our quantitative model predicts:

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

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

Earnings ESP: The Earnings ESP for American Tower is 0.00%.

Zacks Rank: American Tower currently carries a Zacks Rank of 2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a surprise this quarter:

Lexington Realty Trust LXP, set to report quarterly numbers on Nov 5, currently has an Earnings ESP of +1.33% and a Zacks Rank of 3.

National Storage Affiliates Trust NSA, slated to release third-quarter earnings on Nov 5, has an Earnings ESP of +4.88% and a Zacks Rank of 2 at present.

Ventas, Inc. VTR, slated to release third-quarter earnings on Nov 6, has an Earnings ESP of +2.03% and a Zacks Rank of 3 at present.

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.

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American Tower Corporation REIT (AMT) : Free Stock Analysis Report
 
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