Will American Tower Stock Recover?

The performance of the real estate investment trust, or REIT, market is not something to write home about now. Over the past year, the Schwab U.S. REIT ETF (NYSEARCA:SCHH) has gained only by over 6%. By comparison, the broad based SPDR S&P 500 ETF Trust (NYSEARCA:SPY) has gained close to 30% over the same period of time.

One of the largest (or maybe the largest) network REITs, American Tower Corporation (NYSE:AMT), has, unfortunately, underperformed its own market, declining by close to 9% over the past year. Yet, given that 5G technology has picked up pace, can American Tower recover?

REIT Market Set To Grow by $350 Billion

The REIT market has long been held in the light of being stable investments. This is mainly due to the fact that they pay at least 90% of their taxable income as dividends. This has also led to REITs being favored as legitimate income sources.

This investment technique has become more and more popular. In December of 1990, there were only 120 listed REITs globally. Over the next 40 years, the technique blew up big and spread over 40 countries (including all the G7 countries). As of year-end 2023, the market has 940 listed REITs, a huge jump.

REITs are only expected to become more popular as a valid income-generating option for a lot of investors because they offer an easy way of investing in real estate alongside diversification benefits.

Furthermore, REITs might have a significant growth scope because investing in real estate is becoming increasingly popular, and it also scores as a way to gain some capital appreciation. According to one report, the global REIT market will increase by $350.2 billion, at a CAGR of 2.9%, between 2023 and 2028.

American Tower Leads The Telecom REIT Market

REITs come in various shapes, but one that is gaining traction right now is telecommunication REITs. This type of REIT generates revenue through leasing (often long-term) its infrastructure to wireless carriers, internet service providers, as well as other tech companies. These firms also own fiber optic cables, which are essential components of 5G networks.

As of the third quarter of 2024, telecom REITs generated a whopping $6.8 billion in funds from operations and paid $5.2 billion in dividends on a year-to-date basis. Thanks to more and more people connecting to the internet, these REITs own more than 98,000 communications towers and over 219,000 miles of fiber.

This is essentially the American Towers market. Not only is it the leader in the U.S. telecom REIT market, but it is also one of the largest REITs itself. The company has about 42,000 tower sites in the U.S. It also has more than 1,200 properties under agreement for in-building network development.

American Towers’ top U.S. tenants include T-Mobile, AT&T, and Verizon. The company also has a highly diverse portfolio of property interests under third-party communications websites, data center facilities, and other communications real estate assets.

How Have American Towers’ Financials Held Up Recently, and What Has Happened to It Lately?

American Towers had a bumpy 2024. Most recently, it ceased operations in a highly populated country, missing out on a lucrative market opportunity. In September, the company sold its subsidiary that was responsible for operations in India (ATC Telecom Infrastructure Private Limited), which operated over 76,000 communication sites. Still, it operates over 148,000 communications sites.

In the third quarter of 2024, it experienced some notable financial declines. Total revenues remained largely flat compared to the prior year’s period, coming in at $2.52 billion. The company earns the majority of its revenue from property leases; its total property revenue saw a marginal decline year-over-year.

Breaking down geography-wise, the largest decline in property revenue was noticed in Latin America (down by 12% year-over-year). This was mainly due to unfavorable foreign currency translations. This was also accompanied by an increase in revenue reserves related to a customer in Colombia and a decrease in tenant settlements in Mexico.

The top line slowdown had a magnified impact on the bottom-line financials. It posted a significant net loss, which has a huge pivot from the net income it had posted a year earlier in the same period.

Will American Tower Stock Recover?

The 19 analysts who cover American Tower expect that it will recover to $235.26 per share, the consensus fair value target.

Supporting the bullish outlook is the fact that operating income grew last quarter and the company does not seem to have any problems with liquid reserves. As of September 30, 2024, it had approximately $10.9 billion of total liquidity, consisting of approximately $2.2 billion in cash and cash equivalents plus the ability to borrow an aggregate of approximately $8.8 billion under its revolving credit facilities.

The company also has a growing dividend. In the quarter, it paid out $757 million in dividends. It last declared a quarterly dividend of $1.62 per share, which is payable to shareholders on February 3, 2025. This cumulates to an annual dividend of $6.48 and yields 3.35% on current share prices.

Based on its high lease renewal rates and high operating margin, which are characteristic features of its business, the company might very well have the capacity to bounce back from the downturn.

Management certainly thinks it can, which is why it has raised its outlook going forward but investors might consider waiting before jumping into the stock now.

---

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.