Earnings Scorecard: American Tower

Following the first quarter earnings announcement on May 3, most of the analysts covering American Tower Corp ( AMT - Analyst Report ) have revised their estimates.

The brokers have revised their estimates based on the belief that the company will do well based on the strong demand for tower leasing to support high-speed wireless voice, data and on-demand video services. However, they remain concerned about the company’s highly leveraged balance sheet and exposure to foreign exchange risks.

First Quarter Highlights

On a GAAP basis, quarterly net income was $221.3 million or 56 cents per share, compared with $91.8 million or 23 cents per share in the year-ago quarter. Adjusted EPS of 56 cents were significantly ahead of the Zacks Consensus Estimate of 40 cents.

Quarterly total revenue of $696.5 million was up 23.8% year over year, surpassing the Zacks Consensus Estimate of $671 million. Adjusted EBITDA margin was 66% compared with 67% in the prior-year quarter.

Agreement of Analysts

Of the 16 analysts covering the stock in the last 7 days, one analyst has revised the estimate upwards while two have revised their estimates downward for the second quarter of 2012. For the third quarter of 2012, out of the 16 analysts covering the stock, none have revised upwards while three analysts have revised their estimates downward.

For fiscal 2012, out of the18 analysts covering the stock in the last 7 days, three analysts have revised their estimates upward while none have revised downwards. For fiscal 2013 out of the 18 analysts covering the stock, three analysts have revised their estimates upward while none have revised downwards.

Currently, the Zacks Consensus Estimate for the second quarter of fiscal 2012 is 42 cents, with a projected annual growth of 43.53%. For the third quarter of fiscal 2012, the Zacks Consensus Estimate of 43 cents indicates an annual gain of 1,173.44%.

Magnitude of Estimate Revisions

As a result of the analysts’ reluctance to revise estimates either way over the past 7 days, the Zacks Consensus Estimate for the second and third quarter of 2012 has remained static at 42 and 43 cents respectively. However, the current Zacks Consensus Estimate for fiscal 2012 exceeds the prior estimate by a penny. Whereas the estimate for fiscal 2013 remains in line with the Zacks Consensus Estimate.

Earnings Surprises

The company has outdone the Zacks Consensus estimates in three out of the four previous quarters. In the first quarter of 2012, American Tower outpaced the estimate by 16 cents or 40.00%.

The estimate for the ongoing quarter of fiscal 2012 contains a downside risk (essentially a proxy for future earnings surprises) of 2.38%, while the estimate for the third quarter of fiscal 2012 is in line with Zacks Consensus Estimate. The estimate for fiscal 2012 contains an upside potential of 5.09% while for fiscal 2013 it contains an upside potential of 4.39%.

Our Recommendation

We believe that American Tower will benefit from strong demand for wireless voice, data and video services which in turn will propel the growth of the wireless tower industry. Deployment of 4G WiMAX and LTE networks by carriers like Verizon Communication Inc. ( VZ - Analyst Report ) coupled with increased adaptation of smartphones and tablets will also create significant demand for tower leasing. Moreover, the multi-level agreement (MLA) with Sprint-Nextel Corp. ( S - Analyst Report ) is expected to act as a positive catalyst for the company.

Customer concentration is very high for American Tower which indicates that losing a single customer could severely impact its revenue. Expansion in emerging economies like India and Brazil could boost the company’s top-line but its bottom-line might be impacted in the process due to the poor margin in these countries.

Additionally, fierce competition from Crown Castle International Corp. ( CCI - Analyst Report ) coupled with high operating expenses and a highly leveraged balance sheet might act as a headwind for the company.

Considering these factors, we maintain our long-term Neutral recommendation on American tower. Currently, American Tower has a Zacks #2 Rank, implying a short-term buy rating on the stock.

About Earnings Estimate Scorecard

As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/