American Tower’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. AMT is a leading independent operator of wireless communications towers based in Boston, MA.
With a rapid rise in the usage of wireless connectivity, wireless service providers and carriers are focusing on deploying additional equipment for existing networks to enhance network coverage and capacity. Banking on this trend, American Tower’s portfolio of roughly 221,000 communications sites worldwide is strategically placed to capture this incremental demand.
American Tower generates most of its revenues from non-cancellable, long-term (typically 5-10 year) tower leases with major wireless carriers with multiple renewal period options. It also provides on-site maintenance and servicing of antennas, amplifiers and base station equipment. Given the difficulty in moving equipment from one tower to the other, carriers usually prefer to renew their contracts, thus generating a sustainable and recurring stream of cashflows for AMT. The company expects to generate nearly $61 billion of non-cancellable tenant lease revenues in the future.
To capitalize on the tailwinds, American Tower engages in macro-tower investment opportunities and expansionary efforts across global markets. Last year, the acquisition of Telxius’ European and Latin American tower divisions solidified its presence in the attractive markets of Argentina, Brazil, Chile, Germany, Peru and Spain and strengthened its multinational tenant base. AMT also intends to construct roughly 6,500 new sites across its international footprint. Additionally, the CoreSite acquisition in December 2021 has helped it serve the robust demand in the major U.S. markets.
On the balance sheet front, AMT maintains ample liquidity to support its debt servicing. It exited the first quarter of 2022 with total liquidity of $4.2 billion and net leverage ratio of 6.4. In addition, a well-laddered debt maturity schedule and investment-grade credit ratings enable the company to borrow at a favorable rate.
Analysts seem bullish on this Zacks Rank #3 (Hold) stock. The estimate revisions trend for 2022 funds from operations (FFO) per share indicates a favorable outlook for the company, as the same has marginally moved northward over the past month. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
However, T-Mobile, AT&T and Verizon Wireless are the top three customers for American Tower in terms of total revenues for 2021, contributing 20%, 19% and 13%, 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, a hike in interest rates is a major concern for AMT and might increase its borrowing costs. This would affect the company’s ability to purchase or develop real estate. As of Mar 31, 2022, AMT’s total consolidated debt balance was approximately $43.46 billion. The dividend payout might also become less attractive than the yields on fixed income and money market accounts.
Shares of AMT have lost 2.3% in the past three months compared with the industry’s decline of 16.8%.
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Stocks to Consider
Some better-ranked stocks in the REIT sector are Prologis PLD, Rexford Industrial Realty REXR and OUTFRONT Media OUT.
The Zacks Consensus Estimate for Prologis’ 2022 FFO per share has moved 1.8% upward in the past two months to $5.15. PLD presently carries a Zacks Rank of 2 (Buy).
The Zacks Consensus Estimate for Rexford Industrial Realty’s current-year FFO per share has moved 1% northward in the past two months to $1.93. REXR carries a Zacks Rank of 2 at present.
The Zacks Consensus Estimate for OUTFRONT Media’s ongoing year’s FFO per share has been raised 51.5% over the past two months to $2.09. OUT carries a Zacks Rank #2, currently.
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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