On Dec 5, 2013, we downgraded our recommendation on
American Tower Corp.
) to Underperform from Neutral due to its subdued performance
during the third quarter of 2013.
Why the Downgrade?
Despite increased deployment of 3G/4G network by carriers
across the world and aggressive buyouts of towers in emerging
markets, the company is exposed to stiff competition and new
technologies. Moreover, foreign exchange rate risk, less customer
concentration, integration risk, rising operating expenses,
regulatory concerns and a highly leveraged balance sheet may act
as headwinds for the company, going forward. Nevertheless, the
stock is trading at a 52-week high and is fairly valued at the
Currently, American Tower has a Zacks Rank #3 (Hold).
American Tower has a substantially leveraged balance sheet. At
the end of the third quarter of 2013, the company had nearly
$12.6 billion of net debt (total debt-cash & cash
equivalents) and a debt-to-capitalization ratio of 0.77. A very
high level of indebtedness makes it difficult for the company to
generate sufficient cash to meet its debt obligations in the
future. This may also hinder the company's effort to access the
debt market to borrow and refinance at favorable rates. Moreover,
Moody's rating agency has lowered the company's rating outlook to
negative from stable while maintaining Baa3 ratings on its senior
Customer concentration is very high for American Tower and the
top four customers accounted for nearly 60% of its quarterly
revenues. The loss of any of these customers or consolidation
among these wireless carriers will have a significant impact on
the company's top line.
American Tower is highly exposed to foreign exchange rate
risks. As the company continues to expand its network in emerging
nations like India, China and the Latin American region, it will
remain highly vulnerable to exchange rate risks. Moreover, the
current deteriorating economy will further devalue the emerging
Other stocks that are worth mentioning within the same sector
The GEO Group, Inc.
Getty Realty Corp.
National Health Investors Inc.
). All the three stocks currently sport a Zacks Rank #1 (Strong
AMER TOWER CORP (AMT): Free Stock Analysis
GEO GRP INC/THE (GEO): Free Stock Analysis
GETTY REALTY CP (GTY): Free Stock Analysis
NATL HEALTH INV (NHI): Free Stock Analysis
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