Is American Tower Stock Undervalued?

The market action of late has been nothing short of anxiety-ridden for both bulls and bears, not least because of concerns that the Federal Reserve will surprise this year, as it did last year. Recall last year almost double-digit rate cuts were forecasted and Chairman Powell didn’t even come close to approaching that alongside his Board of Governors colleagues.

Perhaps as a result of that, over the past twelve months, the Schwab U.S. REIT ETF (NYSEARCA:SCHH) has dipped into the red by 1.6%, while broader SPDR S&P 500 ETF Trust (NYSEARCA:SPY) rose by 21%.

Yet, investing in REITs should not necessarily be discarded as a poor investment option now. Some REITs have unusual angles with highly sticky business models. American Tower is one such, but is now the time to buy?

What Makes American Tower So Unusual?

We look into one of the biggest REIT names in the U.S., American Tower (NYSE:AMT), to see whether it is undervalued and poses an investment opportunity.

The company is the largest telecom REIT in the U.S. This is a special type of REIT that specializes in the long-term leasing of infrastructure to wireless carriers, internet service providers, and other tech companies. Nowadays, these types of REITs also lease fiber cables, an important component of 5G networks.

American Tower is one of the biggest names in this field, counting big telecom names like T-Mobile US, AT&T, and Verizon Communications as customers. The company sports a portfolio of over 148,000 communications sites, which includes over 42,000 properties in the U.S. and Canada and nearly 106,000 properties internationally.

But American Tower’ stock is not having a smooth ride on Wall Street right now. Over the past year, AMT share price has declined by around 17%, while over the past nine months, it is down by about 7%.

Given the slowdown in REITs and the stock’s downturn, should investors consider buying into it now? 

Tailwinds Supporting American Tower Stock

One major tailwind that American Tower faces is the rapid spread of 5G services and the simultaneous proliferation of mobile handsets globally. The thesis is simple given that more people are getting connected, and they are demanding high-speed networks.

Just to give an idea, global 5G connections surpassed two billion last year, indicating a 48% jump from the prior year. On the proliferation front, the global number of mobile handsets operating stood at almost 15 billion in 2021, while in 2025, it is expected to reach 18.22 billion. These numbers are only expected to go higher as more and more people get connected to the internet.

On the other hand, American Tower officially exited the Indian telecom tower market last year. In September of 2024, the company closed the previously announced sale of 100% of the equity interests in its operations in India to Data Infrastructure Trust. 

American Tower Dipping Into Red Territory?

American Tower has reported its third quarterly results for fiscal 2024, and some financial declines alongside it.

Total revenues were more or less flat compared to the year-ago period, coming in at $2.52 billion. The company’s primary moneymaker is property leases. Total property revenues declined marginally from the prior year’s period to $2.47 billion.

The Latin America segment’s property revenues were down materially. Management cited currency translation as a reason for this, which included negative impacts of $25.4 million related to fluctuations in the Brazilian Real, $13.7 million related to the Mexican Peso, and $2.5 million related to the Chilean Peso. There was also an increase in revenue reserves related to a customer in Colombia and a decrease in tenant settlements in Mexico.

With revenues floating steadily along but not showing much of an uptick, the bottom line for American Tower is struggling to keep pace with profitability on the decline for the quarter as evidenced by a net loss of $792 million. That was a real U-turn versus net income posted just a year earlier.

Liquidity is much less of a concern thanks to approximately $2.2 billion in cash and cash equivalents as well as access to $8.8 billion under its revolving credit facilities. As a result, dividends keep flowing and the Board last declared a quarterly dividend of $1.62 per share, which cumulates to an annual dividend of $6.48 per share and yields 3.66% at prevailing prices.

Valuation is a little bit high, still, with the price sitting at 33.06x its forward non-GAAP earnings, above the industry average. So, despite some price weakness and subdued financials, the stock may still have more to go on the downside, at least technically speaking.

Is American Tower Stock Undervalued?

Analysts see American Tower as being substantially undervalued at this time with 36.1% upside to fair value of $235.26 per share.

Having hiked its dividend for 14 years straight, there is lots to like about American Tower for both value and income investors. But the 3.74% yield and history of hikes is tempered by the 276% payout ratio.

Regardless, sentiment continues to sway favorably for AMT investors among analysts, four of whom revised their earnings estimates higher for the upcoming quarter.

A caveat to conclude with is that a discounted cash flow forecast analysis is more pessimistic than analysts seem to forecast, and puts fair value at just $169 per share, a little below the current price.

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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.