Yes. In a certain way. The stock price has risen significantly since the end of 2018. It is up around 82%. Let’s start by looking at the company’s business.
American Tower (AMT, Financial), a Boston-based REIT (real estate investment trust), was founded in 1995. The company is primarily engaged in real estate transactions and service transactions.
In the real estate operations segment, it leases space at communication sites to wireless service providers, radio and television companies, wireless data providers, and others. On the other hand, Service Operations offers tower-related services in the United States, such as site application, zoning and permitting, and structural analysis. Service Operations functions as the right arm of the business. He assists with real estate operations, such as adding new tenants and equipping the communication site.
According to American Towers’ 2021 Annual Report, real estate operations accounted for 97%, 99%, and 98% of their total revenue for the years ended December 31, 2021, 2020, and 2019, respectively, and services operations accounted for 3%, 1 % and 2% of their total revenue for the years ended December 31, 2021, 2020 and 2019, respectively.
In addition, the annual report indicates that it has nearly 220,000 communications infrastructure assets, including more than 43,000 in the United States and Canada, nearly 76,000 in Asia-Pacific, more than 22,000 in Africa, more than 30,000 in Europe and nearly 49,000 in Latin America.
The company has an experienced management and management team. Steven B. Dodge was the co-founder of this world leader. He led the company until his resignation in 2004.
Mr. Thomas A. Bartlett has served as CEO of the company since March 2020. During his career, he spent nearly 25 years at Verizon Communications. He is a dynamic individual who has taken Covid as an opportunity and is striving to push his business into the 5G era to improve the quality of life for people around the world. It aims to increase the growth rate of the international market relative to the US market.
In top players
With the oligopolistic type market situation, American Tower has few competitors, namely Crown Castle International (ICC, financial) and SBA Communications (SBAC, financial) in the United States. These three dominate the sector in the United States. There are about 131 tower companies managing 130,899 towers, of which about 76% are owned by these three giants nationwide. Others, such as Vertical Bridge and United States Cellular (MUS, Financial), own only 7% of the towers.
As a global giant, with approximately 218,000 towers on six continents, American Tower Co. also brings competition from companies like Indus Towers (Bill of material: 534816, Financial) in India, which is the largest market for American Tower. In India, Indus Towers has 184,748 towers and American Towers has 75,000. Cellnex Telecom (CLNXF, financial) and the observation towers (VTAGY, Financial), the two European peers, own around 101,802 and 82,200 towers in Europe.
According to the first quarter 2022 earnings conference call, the company believes it is strategically positioned to capture incremental demand from global 4G and 5G rollout initiatives. They expect to see an acceleration of hybrid IT and multi-cloud deployments, increasing demand for a highly interconnected portfolio. This would result in opportunities for the selective deployment of capital to high yield development projects.
With the onset of the 5G revolution, the company expects demand for its data center campuses to accelerate in the coming years, pushing storage and compute needs further to the network edge.
In the slide below, the company forecasts total US mobile traffic growth to reach a CAGR of 25% through at least 2027.
According to the company’s Q1 2022 financial and operational update, to address mobile traffic growth, Stand and Deliver is the strategy for the next decade that they plan to pursue through the following means:
- Improve internal processes, maximize rental growth, invest in and deploy more renewable energy solutions that would help increase operational efficiency
- Focusing more on classic macro-tower investment opportunities, seeking more incremental investments, and securing the franchise’s communications real estate assets will help them grow the portfolio.
- Expand the platform by positioning itself for the 5G world, leveraging its existing assets for additional applications, and evaluating new communication real estate architectures
- The company would also like to strengthen its leadership by elevating its position as the preferred communications real estate partner for existing and new customers and also expanding the reach of mobile broadband.
But valuations look high
American Tower appears to be trading at higher valuations. The stock trades at a price-earnings ratio of 44.38, which is above the industry average of 13.36. Likewise, the price-to-book ratio looks above the industry average.
The company’s free cash flow has increased over the past few years. According to data provided by GuruFocus, over the past five years it has increased by 9.40%. However, its prices have increased at a rapid rate of 87.81% over the same period. Perhaps growth plans are fueling the stock price. No wonder the company’s price to free cash flow ratio sits at 39.49.
However, it has good returns with an ROE of 54.51%. The stock also offers a dividend yield of 2.15%
Stretched balance sheet
The company’s balance sheet looks pretty stretched.
According to American Tower’s 10-Q for the first quarter of 2022, it had $38 billion in long-term obligations. However, he had approximately $1.9 billion in cash and cash equivalents. Such high indebtedness weighs on the financial strength and flexibility of the company.
According to the company’s presentation, its net leverage ratio stands at 6.4 times. This has increased in recent quarters. The company intends to lower it to 3-5 times.
In addition, the company’s ongoing expansion plans will require additional investment. This could put more pressure on the company’s finances.
American Tower, one of the giant telecommunications companies, has a solid growth record. Its revenues, as well as its cash flow, have exploded in recent years. Additionally, its expansion plans will result in higher future revenues. Its positioning on the market and its global presence are other assets in its favour.
However, we do not understand the current price of American Tower. Although the company is expected to grow rapidly in the near future, does the high valuation and stretched balance sheet justify it as an investment opportunity?
We have no advantageous long-term position in American Tower stock, whether through stock ownership, options or other derivatives. We wrote this article to express our opinions. We do not receive any compensation from any person or entity for this.
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