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American Tower Corp. (AMT - Analyst Report) is slated to release its second quarter 2012 results on Wednesday, August 1, before the opening bell. The current Zacks Consensus Estimate for the second quarter is pegged at 41 cents, flat year over year.

With respect to earnings surprise, over the trailing four quarters, AMT has outperformed the Zacks Consensus Estimate in three of the last four quarters. The average earnings surprise was a positive 3.65%, implying that the company has outdone the Zacks Consensus Estimate by the same magnitude in three out of the last four quarters.

First-Quarter Performance

On May 3, 2012, AMT declared its first quarter fiscal 2012 financial results that outdid the Zacks Consensus Estimates. On a GAAP basis, first quarter net income was $221.3 million or 56 cents per share compared with a net income of $91.8 million or 23 cents per share in the prior-year quarter. Quarterly EPS of 56 cents was well above the Zacks Consensus Estimate of 40 cents.

Total revenue increased 23.8% year over year to $696.5 million and was above the Zacks Consensus Estimate of $671 million. The solid top-line performance was driven by sustained growth in the company’s Rental and Management business segment.

Agreement of Estimate Revisions

In the last 30 days, out of the 18 analysts covering the stock, three analysts increased their EPS estimates for the second quarter 2012, while three revised downward. Similarly, for the third quarter of fiscal 2012, out of the 18 analysts covering the stock, two analysts increased their EPS estimates and four revised them downward.

For fiscal 2012, in the last 30 days, out of the 18 analysts covering the stock, two analysts increased their EPS estimates, while six moved it downwards. Again, for fiscal 2013, out of the 19 analysts covering the stock, two analysts increased its EPS estimates while three moved in the opposite direction.

Magnitude of Estimate Revisions

Relative to these downward revisions of estimates, the Zacks Consensus Estimate was flat, during the last 30 days, for the second and third-quarter of 2012, at 41 cents and 42 cents, respectively. The estimate for fiscal 2012 over the last 30 days has changed by 2 cents to $1.79. However, the estimate for fiscal 2013 remained stable over the last 30 days. 

Earnings Surprises

The current Zacks Consensus Estimates for the ongoing quarter contains 4.88% downside risk while for the upcoming quarter, it is reflecting a 2.38% upside potential (essentially a proxy for future earnings surprises).

Similarly, for fiscal 2012, the current Zacks Consensus Estimates’ contains an upside potential of 0.56%, while fiscal 2013 estimates contain a downside potential of 7.84%.

Our Recommendation

American Tower is expected to benefit from the surge in wireless voice, broadband, data and video networks, which require more tower space. Rapid expansion in emerging markets like Brazil and India will provide long-term sustainable business opportunities for the company.

American Tower has a huge debt, which may hinder the company’s effort to access the debt market at favorable rates in order to borrow and refinance its expansion plans. Recent development of satellite-delivered radio and video services may reduce the need for tower-based broadcast transmission.

Moreover, competition from other players like Crown Castle International Corp. (CCI - Analyst Report) SBA Communications Corp. (SBAC - Snapshot Report) will act as negative catalysts for the stock.

We thus maintain our long-term Neutral recommendation for AMT. Currently, it has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

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