The potential for cell tower stocks like American Tower Corporation [NYSE: AMT] is significant despite a 44.64% run up in the price since January 2 this year, thanks to the massive potential of the 5G network. American telecom companies are planning to roll out 5G very soon.
Analysts are optimistic about the prospects of the stock, with the earnings of the American Tower Corporation (REIT) [NYSE: AMT] expected to grow by 24% compared to the cumulative average growth of 16% registered over the last 5 years.
Considering its sharp run in the price in the last nine months, should you buy this stock at this price level or stay away from it? What is the American Tower stock forecast?
American Tower Goes Global
American Tower Corporation is among the largest REITs in the world. It owns, operate and develops multi-tenant communication real estate. The company has footprints in many countries, including France, Germany, India, South Africa, Peru, Argentina and Brazil, etc.
Established in 1995, the American Tower Corporation has its portfolio of assets, including approximately 171,000 communication sites in both the United States and abroad. The company offers customized solutions through in-building systems, rooftop services and outdoor distributed antenna systems.
James Taiclet is the Chairman and Chief Executive of American Tower Corporation [NYSE: AMT]. He is an expert in telecommunications and aerospace strategy and operations.
Analysts Rate American Tower Highly
Most analysts love this stock as it has all the ingredients of a good stock. Its wireless tower assets provide consistent cash flow, which is backed by long – term lease contracts of 5 – 10 years. It has high-switching cost that gives it an economic moat.
Out of three major publicly traded tower companies, American Tower Corporation stock has Return on Capital because of its ability to manage its tower assets more efficiently than rival tower companies.
Here it is to be noted that managing tower operations is a capital intensive business and so the barrier to entry is also quite high. In the last decade, AMT has spent a lot of capital acquiring assets in the US and overseas. This is also the reason for low returns in previous years.
Is A Low AMT Dividend Worth Overlooking?
American Tower also benefits from the attractive locations of its towers, which give it efficient scale advantage.
Despite a sharp run of the stock in the last nine months, there is still a lot of steam left in it. Robust revenue growth, increasing profit margin, good cash flow from operations and constantly improving Return on Equity (RoE) provide strength to the stock.
The EPS of the company has increased at the rate of 19% per annum in the last five years.
The company reinvests half of its earnings on business growth, which is good for investors as they can expect a higher dividend payout later.
Another big positive about the company is that all its dividends are comfortably covered by both profits and cash flow, which is an indication of the sustainability of dividend income.
The company posted a stellar performance in Q2 with $1.89 billion, which is 6.1% more than the corresponding quarter of the last year. Net income also witnessed an impressive growth rate of 38.1%, which is $434 million.
The broad outlook for American Tower Corporation stock is positive as US consumer data demand for mobile data is growing at the rate of 30% per year and 5G deployment is fast picking up.
What Are The Risks of Buying American Tower?
Although there is no near – term problem for the company and it is expected to tread on the growth path, the presence of considerable debt on the balance sheet is a serious concern.
Net Debt – to – EBIDTA ratio of the stock is 4.21, which is significant. Although the company took these loans to buy assets on lease and it has also increased shareholder’s return, things can go haywire if business tides go against the company or sector.
Technologic al advancement is another area where it may face a threat in the future. An emerging technology like Voice over WiFi (VoWiFi) may jeopardize its business prospects.
The sector is also fiercely competitive with the presence of two other tower operators – Crown Castle International Corp. and SBA Communications Corp. This reduces the pricing power of the company.
American Tower Stock Forecast: Is It A Buy?
Analysts and financial institutions covering American Tower stock are bullish about the near – term prospects of the company.
The Price-to-Earnings (P/E) Ratio of the company is 3.14 times higher than other telecom stocks.
Investors can buy American Tower stock, but valuations are not particularly attractive. This is certainly not a bargain stock. However, a combination of stable dividends and growth makes it an attractive stock for the next 2-3 quarters.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.