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American Tower Beats Substantially

AMT CCI

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American Tower Corp.’s (AMT - Analyst Report) third-quarter 2012 adjusted earnings per share came in at 58 cents, way ahead of the Zacks Consensus Estimate of 38 cents. On a GAAP basis, net income in the reported quarter was $232.1 million or 58 cents per share compared to a net loss of $15.7 million or a loss of 4 cents per share in the prior-year quarter.

Quarterly total revenue was $713.3 million, up 13.2% year over year but almost in line with the Zacks Consensus Estimate of $714 million.

Adjusted EBITDA in the quarter was $463.6 million, representing an annualized growth of 15.7%. Adjusted EBITDA margin was 65% compared with 64% in the prior-year quarter.

Gross margin in the reported quarter was 74.1% compared with 74.4% in the year-ago quarter. Selling, general & administrative expenses were $81.5 million compared with $76.5 million in the year-ago quarter.

Quarterly operating income was $295.6 million, up 29.5% year over year. In the reported quarter, American Tower repurchased 0.1 million shares of its Class A common stock for a total consideration of $5.9 million.

At the end of the first nine months of 2012, American Tower had around $1,116.5 million in cash from operations against $850 million at the end of the first nine months of 2011. Proforma adjusted funds from operations (AFFO) in the quarter was $284.1 million, up 10.2% from the year-ago quarter. Quarterly proforma AFFO per share was $0.71, up 9.2% year over year.

At the end of the reported quarter, the company had $382.3 million in cash and marketable securities and around $7,489.6 million in outstanding debt on its balance sheet compared with $330.2 million in cash and marketable securities and $7,134.5 million in outstanding debt at the end of 2011. At the end of the reported quarter, debt-to-capitalization ratio was 0.67% against 0.67 at the end of 2011.

Domestic Rental and Management Segment

Quarterly revenue was $480.3 million, up 10% year over year. Gross margin came in at 80.8% compared with 79.1% in the year-ago quarter.Operating margin was 77% compared with 74% in the year-ago quarter.

International Rental and Management Segment

Quarterly revenue stood at $217.2 million, showing a 22% year-over-year surge. Gross margin for the segment was 62.5% compared with 63.6% in the year-ago quarter.Operating margin was 51% flat as compared with previous the year-ago quarter.

Network Development Services Segment

Quarterly revenue was $15.8 million, up 1.2% year over year. Gross margin was 53.6% compared with 50.2% in the year-ago quarter.Operating margin was 40% compared with 38% in the year-ago quarter.

Tower Count

As of September 30, 2012, AmericanTowermanaged 50,699 communications towers, of which 50,226 are for Wireless network and 473 for Broadcasting. Geographically, the company operates 21,668 wireless towers and 274 broadcast towers in the U.S. along with 29,031 wireless towers and 199 broadcast towers outside the U.S.

Financial Outlook

For 2012, total revenue from the Rental & Management segment is likely to be in the range of $2,775 million to $2,805 million. Adjusted EBITDA is anticipated in the band of $1,850 -$1,880 million. AFFO is estimated to be around $1,185 -$1,207 million. Net income is estimated around $625 -$660 million. Capital expenditure is expected in the band of $500 -$550 million.

Recommendation

The company is expected to benefit from the surge in wireless voice, broadband, data and video networks, which require more tower space. Next-generation 4G LTE networks coupled with increased usage of smartphones and tablets will also create impressive demand for tower leasing. Rapid expansion in emerging markets like Brazil and India will provide long-term sustainable business opportunities for the company.

However, American Tower has a huge debt burden, which may hinder the company’s effort to access the debt market at favorable rates in order to borrow and refinance its expansion plans. Additionally, the recent acquisition of 7200 T-Mobile towers has made its arch rival Crown Castle International (CCI - Analyst Report) the largest tower operator in the U.S. and is expected to provide stiff competition going forward.

We maintain our long-term Neutral recommendation on American Tower Corporation. However, the company has a Zacks #2 Rank, implying a short-term Buy rating.

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