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Still Neutral on American Tower

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On Jun 6, we maintained our Neutral recommendation on American Tower Corp. (AMT - Free Report) , as the company’s bottom line missed the Zacks Consensus Estimate but top line surpassed the same in the recently concluded quarter.

Why Remains Neutral?

Higher adoption of smartphones/tablets coupled with increased deployment of 3G/4G networks by the carriers across the world will continue to drive the demand for tower space going forward. American Tower is rapidly expanding its business operations in various emerging markets. In addition to Brazil and Mexico, American Tower has taken a major initiative to expand its operations in India. The company is already on the verge of acquiring 8,000 wireless towers of Tower Vision, a privately held Indian wireless tower operator. This will generate long-run sustainable business for the company.

Moreover, the company has started offering cost-effective outdoor Distributed Antenna Systems (DAS) to its customers.  Management indicated that DAS has the potential to reach 2.0% of American Tower’s total revenue over a period of three to five years.

On the downside, American Tower has a substantially leveraged balance sheet. At the end of the first quarter of 2013, the company had nearly $8.79 billion of net debt (total debt-cash & cash equivalents) and a debt-to-capitalization ratio was 0.70. Very high level of indebtedness increases the possibility that the company may not be able to generate sufficient amount of 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.

Furthermore, higher customer concentration for American Tower coupled with huge exposure to foreign exchange rate risks will act as headwinds for the company going forward.

Currently, American Tower has a Zacks Rank #3 (Hold).

Other Stocks Outlook in Related Industries

Other stocks in the wireless tower industry include Crown Castle International Corp. (CCI - Free Report) , SBA Communication Corp. (SBAC - Free Report) and Equinix Inc. (EQIX - Free Report) . Currently, both Crown Castle and SBA Communication have a Zacks Rank #2 (Buy) while Equinix has a Zacks Rank #3 (Hold).

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