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American Tower (AMT) Raised to Strong Buy on 5G Prospects

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On Sep 29, American Tower Corporation (AMT - Free Report) was upgraded to a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

Wireless operators have been actively participating in the FCC's spectrum auction (600 Mhz) to drive investments in 5G networks. Notably, Verizon Communications Inc. (VZ - Free Report) plans to launch 5G network next year while carriers like AT&T Inc. (T - Free Report) and T-Mobile US Inc. (TMUS - Free Report) have hinted at a launch before 2020. We believe that increased investment in 5G will boost demand for tower and cell sites of American Towers, thereby driving its top line in the days ahead.

Sustainable Revenues

AmericanTowergenerates most of its revenues from long-term (typically 5–10 year) tower leases with major wireless carriers. In addition, the company provides on-site maintenance and servicing of antennas, amplifiers, and base station equipment. Since moving equipment from one tower to another is cumbersome, carriers normally renew these contracts upon expiration. This generates a strong long-term lease up-cycle. The revenues generated from leasing and management of such networks is remarkable and over 95% is recurring in nature.

Focus on India

AmericanTower has a specific focus on India. Last year, the company acquired controlling interest in Viom Networks Ltd. which increased the tower count in India. The acquisition will help build deeper ties with mobile network operators such as Airtel, Vodafone, Idea, Tata, Reliance and Aircel. Notably, Viom Networks operates around 42,000 towers, supporting nearly 100,000 tenancies. Interestingly, India is a lucrative market for wireless tower operators. Moreover, American Tower owns more than 10,000 towers in the country apart from Viom’s towers.

A Word of Caution

Customer concentration is very high for American Tower and the top four customers account for majority of the revenues. Any loss or consolidation among these wireless carriers will have a significant material impact on the company’s top line.

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