On Mar 13, we maintained our Neutral recommendation on American Tower Corp. (AMT), as the company’s bottom line missed the Zacks Consensus Estimate but top line beat the same in the recently concluded quarter.
Why Kept Neutral?
Higher adoption of smartphones/tablets coupled with increased deployment of 3G/4G networks by the carriers across the world will continue to drive the demand for tower space going forward. American Tower is rapidly expanding its business operations in various emerging markets.
In addition to Brazil and Mexico, American Tower has taken a major initiative to expand its operations in India. This will generate long-run sustainable business for the company.
Moreover, the company has started offering cost-effective outdoor Distributed Antenna Systems (:DAS) to its customers. Management indicated that DAS has the potential to reach 2.0% of American Tower’s total revenue over a period of three to five years.
On the downside, American Tower has a substantially leveraged balance sheet. At the end of the fourth quarter of 2012, the company had nearly $8.75 billion of net debt (total debt-cash & cash equivalents) and a debt-to-capitalization ratio was 0.70. Very high level of indebtedness increases the possibility that the company may not be able to generate sufficient amount of cash to meet its debt obligations in the future. This may also hinder the company’s effort to access the debt market to borrow and refinance at favorable rates.
Furthermore, higher customer concentration for American Tower coupled with huge exposure to foreign exchange rate risks will act as headwinds for the company going forward.
Currently, American Tower has a Zacks Rank #3 (Hold).
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