American Tower AMT boasts an extensive, geographically diversified communication real estate portfolio. The company will likely benefit from increased investment by wireless carriers in 4G and 5G networks. Solid business fundamentals and a prudent capital-allocation strategy augur well for growth.
However, high customer concentration and the ongoing consolidation in the wireless industry are likely to weigh on its top-line growth.
What’s Aiding AMT?
The advancement in mobile technology, such as 4G and 5G, and the proliferation of bandwidth-intensive applications propel growth in mobile data usage globally. Wireless service providers and carriers have been deploying additional equipment for existing networks to enhance network coverage and capacity.
Given its portfolio of more than 148,000 communication sites worldwide and the unmatched geographic diversification of its sites, American Tower is strategically positioned to capture incremental demand from global 4G and 5G deployment efforts, growing wireless penetration and spectrum auctions. In the third quarter of 2024, the company recorded healthy year-over-year organic tenant billings growth of 5.2% and total tenant billings growth of 5.9%. Amid secular growth trends in the wireless industry, the healthy performance is expected to continue in 2024 and beyond.
American Tower continues focusing on macro-tower investment opportunities and gaining scale in attractive global markets. During the nine months that ended September 2024, the company spent $114.9 million on acquisitions. During the same period, it constructed 1,423 communication sites globally.
Apart from having a robust operating platform, American Tower has ample liquidity to support its debt servicing. As of Sept. 30, 2024, the company had $10.9 billion in total liquidity, and its net leverage ratio was 5.2. In addition, with a weighted average remaining term of debt of 5.8 years, it has decent financial flexibility.
American Tower has a disciplined capital allocation strategy and remains committed to increasing shareholder value through regular dividend hikes. In the last five years, American Tower increased its dividend 16 times, and the annualized dividend growth rate for this period is 11.56%. Moreover, it has a lower dividend payout compared with its industry. Such disbursements highlight its operational strength and commitment to rewarding shareholders handsomely. Check American Tower’s dividend history here.
What’s Hurting AMT?
Customer concentration is high for American Tower, with the company’s top three customers in terms of consolidated operating revenues for the third quarter of 2024 being T-Mobile (18 %), AT&T (15 %) and Verizon Wireless (13%). The loss of any of these customers, consolidation among them or reduction in network spending might adversely impact the company’s top line.
The merger between T-Mobile and Sprint, which closed in April 2020, resulted in tower site overlap for American Tower. During the three months ended Sept. 30, 2024, the churn was roughly 2% of its tenant billings, mainly driven by the churn in its U.S. & Canada property segment.
Given the contractual lease cancellations and non-renewals by T-Mobile, including legacy Sprint Corporation leases, management expects the churn rate in its U.S. & Canada property segment to remain elevated through 2025.
Over the past six months, shares of the company have gained 9.8%, underperforming the industry's 17.3% growth.
Analysts seem bearish on this communication REIT carrying a Zacks Rank #3 (Hold), with the Zacks Consensus Estimate for its 2024 funds from operations (FFO) per share being lowered marginally to $10.49 over the past two months.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the broader REIT sector are Welltower WELL and Cousins Properties CUZ, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Welltower’s ongoing year’s FFO per share has increased marginally over the past month to $4.26.
The Zacks Consensus Estimate for Cousins Properties’ 2024 FFO per share has moved marginally northward in the past month to $2.68.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
