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American Tower Well Poised on Tower & Lease Deals Amid Risks
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On Apr 4, we issued an updated research report on leading international wireless tower operator, American Tower Corp. (AMT - Free Report) .
Positives
American Tower continues to benefit from increased investments by wireless carriers in 5G networks. Next-generation 4G LTE and 5G networks and increased usage of smartphones and tablets are building up demand for tower leasing. Additionally, the company’s increased investments in Asia are paying off.
Going forward, we believe that American Tower’s tower buyouts in emerging markets will drive its top line and lend it a competitive edge. American Tower’s Indian, EMEA and Latin American operations account for almost 50% of its organic core revenue growth.
American Tower generates most of its revenues from long-term (typically 5–10 year) tower leases with major wireless carriers. In addition, the company provides on-site maintenance and servicing of antennas, amplifiers, and base station equipment. Since moving equipment from one tower to another is cumbersome, carriers normally renew these contracts upon expiration. This generates a strong long-term lease up-cycle.
Revenues generated from leasing and management of such networks are remarkable and over 95% are recurring in nature. Moreover, most of its towers are over 210 feet tall, thus allowing sufficient space for its customers to install transmission equipment. The company also holds 29% of the land under its towers in the U.S.
We believe these efforts helped American Tower to outperform the Zacks categorized Reit- Eqty Trust Other industry over the past three months. The stock gained over 14.4% compared with the industry’s growth of 0.8% over the same time frame.
Headwinds
American Tower has a substantially leveraged balance sheet. At the end of 2016, the company had $787.2 million in cash and cash equivalents, and around $18,294.7 million of outstanding long-term debt compared with $320.7 million and $17,068.8 million, respectively, at the end of 2015. Such high debt levels may impede sufficient cash flow generation, which is needed to meet future debt obligations.
Moreover, high customer concentration, foreign currency exchange rate risks, stiff competition, integration risks and rising operating expenses are near-term risks. Further, the ongoing consolidation trend among telecom and cable TV operators may lead to serious financial fluctuation for the company.
Additionally, the company faces threats from emerging technologies like Voice over WiFi (VoWiFi). Also, American Tower competes fiercely with tower operators like Crown Castle International Corp. (CCI - Free Report) and SBA Communications Corp. (SBAC - Free Report) .
Recent Events
At the end of Mar 2017, American Tower inked a new tower lease agreement worth $100 million with one of its major clients. This might be considered a shot in the arm for the company. Although it did not reveal the name of the client, as per a FierceWireless report, the tenant is U.S. telecom behemoth AT&T Inc. (T - Free Report) . The wireless carrier is set to deploy 40 MHz of AWS-3 and WCS spectrum of its portfolio.
Following this renewed deal, American Tower has raised its 2017 revenue guidance to the range of $6.31–$6.49 billion from the previous estimate of $6.21–$6.39 billion. Adjusted EBITDA is projected in the range of $3,810–$3,910 million. Consolidated AFFO will likely be $2,700–$2,800 million.
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American Tower Well Poised on Tower & Lease Deals Amid Risks
On Apr 4, we issued an updated research report on leading international wireless tower operator, American Tower Corp. (AMT - Free Report) .
Positives
American Tower continues to benefit from increased investments by wireless carriers in 5G networks. Next-generation 4G LTE and 5G networks and increased usage of smartphones and tablets are building up demand for tower leasing. Additionally, the company’s increased investments in Asia are paying off.
Going forward, we believe that American Tower’s tower buyouts in emerging markets will drive its top line and lend it a competitive edge. American Tower’s Indian, EMEA and Latin American operations account for almost 50% of its organic core revenue growth.
American Tower generates most of its revenues from long-term (typically 5–10 year) tower leases with major wireless carriers. In addition, the company provides on-site maintenance and servicing of antennas, amplifiers, and base station equipment. Since moving equipment from one tower to another is cumbersome, carriers normally renew these contracts upon expiration. This generates a strong long-term lease up-cycle.
Revenues generated from leasing and management of such networks are remarkable and over 95% are recurring in nature. Moreover, most of its towers are over 210 feet tall, thus allowing sufficient space for its customers to install transmission equipment. The company also holds 29% of the land under its towers in the U.S.
We believe these efforts helped American Tower to outperform the Zacks categorized Reit- Eqty Trust Other industry over the past three months. The stock gained over 14.4% compared with the industry’s growth of 0.8% over the same time frame.
Headwinds
American Tower has a substantially leveraged balance sheet. At the end of 2016, the company had $787.2 million in cash and cash equivalents, and around $18,294.7 million of outstanding long-term debt compared with $320.7 million and $17,068.8 million, respectively, at the end of 2015. Such high debt levels may impede sufficient cash flow generation, which is needed to meet future debt obligations.
Moreover, high customer concentration, foreign currency exchange rate risks, stiff competition, integration risks and rising operating expenses are near-term risks. Further, the ongoing consolidation trend among telecom and cable TV operators may lead to serious financial fluctuation for the company.
Additionally, the company faces threats from emerging technologies like Voice over WiFi (VoWiFi). Also, American Tower competes fiercely with tower operators like Crown Castle International Corp. (CCI - Free Report) and SBA Communications Corp. (SBAC - Free Report) .
Recent Events
At the end of Mar 2017, American Tower inked a new tower lease agreement worth $100 million with one of its major clients. This might be considered a shot in the arm for the company. Although it did not reveal the name of the client, as per a FierceWireless report, the tenant is U.S. telecom behemoth AT&T Inc. (T - Free Report) . The wireless carrier is set to deploy 40 MHz of AWS-3 and WCS spectrum of its portfolio.
Following this renewed deal, American Tower has raised its 2017 revenue guidance to the range of $6.31–$6.49 billion from the previous estimate of $6.21–$6.39 billion. Adjusted EBITDA is projected in the range of $3,810–$3,910 million. Consolidated AFFO will likely be $2,700–$2,800 million.
American Tower currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>