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Should You Hold American Tower (AMT) in Your Portfolio Now?

Zacks Equity Research

American Tower Corporation AMT continues to capitalize on demand for denser mobile networks on the back of acquisition and tower constructions. However, ongoing consolidations in the telecom sector may affect its near-term property revenues.  

Notably, this tower real estate investment trust (REIT) has a disciplined capital-allocation strategy, through which it is adding incremental scale via acquisitions in international business. Further, it anticipates record level of international macro tower construction in 2019.

The ongoing 4G transitions across the company’s international footprint is spurring 4G network deployments by carriers. Further, with the advent of technologies, especially 5G and IoT, Europe has become an important focus for American Tower as it a mature market with high margins. Hence, the company’s international business complements its core U.S. tower portfolio, and is anticipated to drive bottom-line growth.

Further, solid business model fundamental enables the company to enjoy stable revenues. Specifically, the company generates most of its revenues from long-term (typically 5-10 year) tower leases with major wireless carriers. Also, revenues generated from leasing and management of networks is substantial, and roughly 95% is recurring in nature. 

Moreover, the company remains committed to rewarding shareholders through higher dividend payouts. It has consistently increased its quarterly dividends since 2012 and this December, it announced a 6.3% sequential hike in fourth quarter dividends to $1.01.Such strategic moves boost investors’ confidence in the stock.

In the past three months, the stock has gained 3.7%, outperforming the industry’s rally of 0.1%.

However, the India-based carrier consolidation-driven churn due to the bankruptcy of Aircel has emerged as a headwind for the company, and is likely to affect American Tower’s property revenues in the near term. In fact, management anticipates this to compress the company’s gross margin and operating profit in 2019, thereby, impacting the Asia property segment’s performance. 

Further, although rapid expansion in the international markets will boost revenues, it may affect the bottom line as tower operations in the emerging markets are not as profitable as that in the mature U.S. market.

Moreover, American Tower’s leveraged balance-sheet may impede cash-flow growth, which is needed to meet future debt obligations. Moreover, this may keep the company from accessing the debt market and refinancing at suitable rates.

American Tower currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

EastGroup Properties, Inc. EGP currently carries a Zacks Rank of 2 (Buy). The company’s funds from operations (FFO) per share estimates for 2019 have been revised marginally upward to $4.96 in two months’ time. Shares of the company have rallied 13.2% over the past six months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Duke Realty's DRE Zacks Consensus Estimate for the current-year FFO per share has moved north to $1.44 in the past two months. This Zacks Rank #2 company’s shares have gained 8% over the past six months.

Cousins Properties Incorporated’s CUZ Zacks Consensus Estimate for the ongoing-year FFO per share has moved 2.1% north to $2.96 over the past two months. Shares of this Zacks Rank #2 company have gained 11.7% in six months’ time.

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American Tower Corporation (REIT) (AMT) : Free Stock Analysis Report
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EastGroup Properties, Inc. (EGP) : Free Stock Analysis Report
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