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Is American Tower (AMT) a Good Choice for Your Portfolio Now?
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American Tower Corporation’s (AMT - Free Report) extensive and geographically diversified communication real estate portfolio positions it well to ride the growth curve amid the rise in capital spending by wireless carriers on the incremental demand from global 4G and 5G deployment efforts. Its expansionary efforts and disciplined capital-allocation strategy augur well for long-term growth. However, customer concentration and high interest rates pose key concerns for the company.
What’s Aiding It?
With the advancement in mobile technology, such as 4G and 5G networks and the proliferation of bandwidth-intensive applications, mobile data usage has increased significantly globally. The excessive usage of network-intensive applications for video conferencing, cloud services and hybrid-working scenarios fueled the rise.
This has led to greater capital spending by wireless carriers on the back of incremental demand from global 4G and 5G deployment efforts, growing wireless penetration and spectrum auctions, aiding demand for AMT’s wireless communication infrastructure. This upbeat trend is likely to continue in the upcoming period, boosting demand for the company’s assets and driving healthy leasing activity.
AMT has a resilient and stable business model. It generates most of its revenues from non-cancellable, long-term (typically 5-10 years) tower leases with major wireless carriers and has multiple renewal period options. This assures stable revenue generation for the company.
To capitalize on the secular trends of the industry, the company is consistently focusing on macro-tower investment opportunities and expansionary efforts across global markets. It has built more than 45,000 international sites since it began expanding internationally. Around 8,000 of these sites have been built in Africa as carriers continue to invest in their network coverage and densification needs.
In the six months ended Jun 30, 2023, AMT purchased 68 communications sites, as well as other communications infrastructure assets, in the United States, Canada, France, Poland and Spain.
This real estate investment trust (REIT) maintains a healthy balance sheet with ample financial flexibility. It exited the second quarter of 2023 with $8.2 billion in total liquidity and a net leverage ratio of 5.3. The company also enjoys investment-grade credit ratings of BBB- and Baa3 with a stable outlook from Standard & Poor’s and Moody’s, respectively, rendering it access to the debt market at a favorable rate. With a solid financial footing, AMT remains well-placed to bank on long-term growth opportunities.
Solid dividend payouts are arguably the biggest enticement for REIT shareholders and American Tower remains committed to that. This September, the company announced a 3.2% hike in its quarterly dividend on its common stock to $1.62 per share from $1.57 paid out earlier. Moreover, in the last five years, AMT has increased its dividend 19 times and its five-year annualized dividend growth rate is 15.10%. Such efforts boost investors’ confidence in the stock.
What’s Hurting It?
American Tower has a high customer concentration, with T-Mobile (TMUS - Free Report) , AT&T and Verizon Wireless contributing 16%, 14% and 12%, respectively, of its property revenues for the second quarter of 2023. The loss of any of these customers, consolidation among them or reduction in network spending could adversely impact the company’s top-line growth.
Given the contractual lease cancellations and non-renewals by T-Mobile, including legacy Sprint Corporation leases, management expects the churn rate in its U.S. & Canada property segment to remain elevated.
Amid a high-interest rate environment, American Tower may find it difficult to purchase or develop real estate with borrowed funds as the costs are likely to be on the higher side. We expect a year-over-year rise of 24.8% in the company’s interest expenses this year.
Shares of this Zacks Rank #3 (Hold) company have lost 17.6% in the past three months compared with the industry’s fall of 11%.
The Zacks Consensus Estimate for Welltower’s 2023 funds from operations (FFO) per share has been raised marginally over the past week to $3.56.
The Zacks Consensus Estimate for Americold Realty Trust’s ongoing year’s FFO per share has been increased marginally over the past month to $1.26.
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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Is American Tower (AMT) a Good Choice for Your Portfolio Now?
American Tower Corporation’s (AMT - Free Report) extensive and geographically diversified communication real estate portfolio positions it well to ride the growth curve amid the rise in capital spending by wireless carriers on the incremental demand from global 4G and 5G deployment efforts. Its expansionary efforts and disciplined capital-allocation strategy augur well for long-term growth. However, customer concentration and high interest rates pose key concerns for the company.
What’s Aiding It?
With the advancement in mobile technology, such as 4G and 5G networks and the proliferation of bandwidth-intensive applications, mobile data usage has increased significantly globally. The excessive usage of network-intensive applications for video conferencing, cloud services and hybrid-working scenarios fueled the rise.
This has led to greater capital spending by wireless carriers on the back of incremental demand from global 4G and 5G deployment efforts, growing wireless penetration and spectrum auctions, aiding demand for AMT’s wireless communication infrastructure. This upbeat trend is likely to continue in the upcoming period, boosting demand for the company’s assets and driving healthy leasing activity.
AMT has a resilient and stable business model. It generates most of its revenues from non-cancellable, long-term (typically 5-10 years) tower leases with major wireless carriers and has multiple renewal period options. This assures stable revenue generation for the company.
To capitalize on the secular trends of the industry, the company is consistently focusing on macro-tower investment opportunities and expansionary efforts across global markets. It has built more than 45,000 international sites since it began expanding internationally. Around 8,000 of these sites have been built in Africa as carriers continue to invest in their network coverage and densification needs.
In the six months ended Jun 30, 2023, AMT purchased 68 communications sites, as well as other communications infrastructure assets, in the United States, Canada, France, Poland and Spain.
This real estate investment trust (REIT) maintains a healthy balance sheet with ample financial flexibility. It exited the second quarter of 2023 with $8.2 billion in total liquidity and a net leverage ratio of 5.3. The company also enjoys investment-grade credit ratings of BBB- and Baa3 with a stable outlook from Standard & Poor’s and Moody’s, respectively, rendering it access to the debt market at a favorable rate. With a solid financial footing, AMT remains well-placed to bank on long-term growth opportunities.
Solid dividend payouts are arguably the biggest enticement for REIT shareholders and American Tower remains committed to that. This September, the company announced a 3.2% hike in its quarterly dividend on its common stock to $1.62 per share from $1.57 paid out earlier. Moreover, in the last five years, AMT has increased its dividend 19 times and its five-year annualized dividend growth rate is 15.10%. Such efforts boost investors’ confidence in the stock.
What’s Hurting It?
American Tower has a high customer concentration, with T-Mobile (TMUS - Free Report) , AT&T and Verizon Wireless contributing 16%, 14% and 12%, respectively, of its property revenues for the second quarter of 2023. The loss of any of these customers, consolidation among them or reduction in network spending could adversely impact the company’s top-line growth.
Given the contractual lease cancellations and non-renewals by T-Mobile, including legacy Sprint Corporation leases, management expects the churn rate in its U.S. & Canada property segment to remain elevated.
Amid a high-interest rate environment, American Tower may find it difficult to purchase or develop real estate with borrowed funds as the costs are likely to be on the higher side. We expect a year-over-year rise of 24.8% in the company’s interest expenses this year.
Shares of this Zacks Rank #3 (Hold) company have lost 17.6% in the past three months compared with the industry’s fall of 11%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the real estate investment trust sector are Welltower (WELL - Free Report) and Americold Realty Trust (COLD - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Welltower’s 2023 funds from operations (FFO) per share has been raised marginally over the past week to $3.56.
The Zacks Consensus Estimate for Americold Realty Trust’s ongoing year’s FFO per share has been increased marginally over the past month to $1.26.
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.