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American Tower (AMT) Up 20.1% QTD: Will the Trend Last?

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Shares of American Tower Corporation (AMT - Free Report) , currently carrying a Zacks Rank #3 (Hold), have soared 20.1% so far in the quarter, outperforming the industry’s increase of 5.7%.

Late in October, American Tower reported a third-quarter adjusted FFO per share, attributable to AMT common stockholders, of $2.58, beating the Zacks Consensus Estimate of $2.35. Moreover, the figure climbed 9.3% year over year. Results reflected better-than-anticipated revenues, aided by revenue growth across its Property segment. The company also raised its outlook for 2023.

Moreover, recently, AMT announced that through its Africa operations (ATC Africa), it is set to make significant strides in improving wireless connectivity in Nigeria via an agreement with MTN Nigeria. The collaboration highlights AMT's commitment to sustainability and responsible business practices while expanding its presence in the African market. Under the terms of this agreement, starting in the second half of 2024, ATC Africa is set to facilitate new tenancies for MTN Nigeria over a multi-year period.

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Let us decipher the factors behind the surge in the stock price and check whether this trend will last or not.

The advancement in mobile technology, such as 4G and 5G networks, and the proliferation of bandwidth-intensive applications have driven growth in mobile data usage globally. Also, the rampant usage of network-intensive applications for video conferencing, cloud services and remote-working scenarios has fueled the rise.

Given this backdrop, American Tower’s extensive and geographically diversified communication real estate portfolio is well-poised to gain from the rise in capital spending by wireless carriers on the incremental demand from global 4G and 5G deployment efforts, growing wireless penetration and spectrum auctions.

American Tower has a resilient and stable business model that provides a safe harbor. The company generates most of its revenues from non-cancellable, long-term (typically five to 10 years) tower leases with major wireless carriers with multiple renewal period options. Management expects to generate nearly $61.1 billion in non-cancellable tenant lease revenues in the future.

Moreover, American Tower has a solid track record of delivering a healthy performance due to the robust demand for its global macro-tower-oriented asset base. It has witnessed strong growth in key financial metrics while continuing platform expansion.

In the third quarter of 2023, the company recorded healthy year-over-year organic tenant billings growth of 6.3% and total tenant billings growth of 7.3%. In the nine months ended Sep 30, 2023, revenues from the property segment and adjusted EBITDA increased by 5.2% and 7.9%, respectively, on a year-over-year basis.

Between 2012 and 2022, American Tower’s revenues from the property segment and adjusted EBITDA grew at CAGRs of 14.1% and 13.4%, respectively. Amid secular growth trends in the wireless industry, healthy performance is expected to continue in 2023, with management projecting property revenues and adjusted EBITDA growth of 4.5% and 6.1%, respectively, at the midpoint.

American Tower’s focus on macro-tower investment opportunities and expansionary efforts across global markets has paid off well. It has built more than 45,000 international sites since it began expanding internationally. Around 8,000 of these sites have been built in Africa as carriers continue to invest in their network coverage and densification needs. In the nine months ended Sep 30, 2023, it purchased 69 communications sites and other communication infrastructure assets in the United States, Canada, France, Poland and Spain for $65.7 million.

On the balance sheet front, AMT exited the third quarter of 2023 with $9.7 billion in total liquidity, and its net leverage ratio was 5. In addition, with a weighted average remaining debt term of 6.1 years, it has decent financial flexibility. In addition, its trailing 12-month return on equity (ROE) is 5.97% compared with the industry’s average of 3.10%, indicating that it is more efficient in using shareholders’ funds than its peers.

Solid dividend payouts are arguably the biggest enticements for REIT shareholders, and American Tower remains committed to that. In September 2023, it announced a 3.2% hike in its quarterly dividend on the company’s common stock to $1.62 per share from $1.57 paid out earlier. In the last five years, American Tower has increased its dividend 19 times, and the annualized dividend growth rate for this period is 15.10%. This is attractive to income investors and represents a steady income stream. Check American Tower’s dividend history here.

Stocks to Consider

Some better-ranked stocks from the REIT sector are Welltower (WELL - Free Report) and STAG Industrial, Inc. (STAG - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Welltower’s current-year funds from operations (“FFO”) per share has moved marginally northward over the past month to $3.58.

The Zacks Consensus Estimate for STAG Industrial’s 2023 FFO per share has moved 1.3% upward in the past month to $2.28.

Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.

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