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American Tower continues to benefit from increased investment of wireless carriers in 5G networks. Mobile subscriber growth has significantly boosted by the wireless tower industry. Next-generation 4G LTE networks and the increased usage of smartphones and tablets are creating impressive demand for tower leasing. Additionally, the company’s increased investments in Asia are paying off. American Tower’s Indian, EMEA and Latin American operations account for almost 50% of its organic core revenue growth. The company, along with a Dutch pension fund, also announced a joint venture named ATC Europe to focus on European telecom real estate operations.
American Tower generates 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 a cumbersome task, carriers normally renew these contracts upon expiration. This generates a strong long-term lease up-cycle.
Major U.S. telecom behemoths – Verizon Communications Inc. (VZ - Free Report) , Sprint Corp. (S - Free Report) , T-Mobile US (TMUS - Free Report) and AT&T Inc. (T - Free Report) – are all moving ahead with their 5G plans and aim to launch their 5G networks in the upcoming years. They have either tested or are in the process of testing 5G technology. In order to support the rising demand for 4G LTE and 5G deployment, American Tower plans to construct nearly 2,500 sites globally in 2016.
We believe these efforts have helped American Tower outperform the Zacks categorized Reit- Eqty Trust Other industry on a year-to-date basis. The stock has gained over 10.31% compared to the industry’s growth of 3.25% on a year-to-date basis.
Headwinds
American Tower has a substantially leveraged balance sheet. The company exited the third quarter of 2016 with $18,436.1 million of outstanding long-term debt compared with $17,068.8 million at the end of 2015. Such high debt levels may impede sufficient cash flow generation, which is needed to meet future debt obligations. Moreover, this may keep the company from accessing the debt market and refinancing at suitable rates.
Moreover, high customer concentration, foreign currency exchange rate risks, stiff competition, integration risks and rising operating expenses are near-term risks. Further, the ongoing consolidation trend among telecom and cable TV operators may generate significant financial fluctuations for the company.
Additionally, the company faces threats from emerging technologies like Voice over WiFi (VoWiFi). Such a feature is useful in areas with strong Wi-Fi but low cellular signal strength.
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American Tower (AMT) Cut to Hold on Lingering Concerns
On Dec 19, leading international wireless tower operator, American Tower Corp. (AMT - Free Report) was downgraded by a notch to Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Advantages
American Tower continues to benefit from increased investment of wireless carriers in 5G networks. Mobile subscriber growth has significantly boosted by the wireless tower industry. Next-generation 4G LTE networks and the increased usage of smartphones and tablets are creating impressive demand for tower leasing. Additionally, the company’s increased investments in Asia are paying off. American Tower’s Indian, EMEA and Latin American operations account for almost 50% of its organic core revenue growth. The company, along with a Dutch pension fund, also announced a joint venture named ATC Europe to focus on European telecom real estate operations.
American Tower generates 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 a cumbersome task, carriers normally renew these contracts upon expiration. This generates a strong long-term lease up-cycle.
Major U.S. telecom behemoths – Verizon Communications Inc. (VZ - Free Report) , Sprint Corp. (S - Free Report) , T-Mobile US (TMUS - Free Report) and AT&T Inc. (T - Free Report) – are all moving ahead with their 5G plans and aim to launch their 5G networks in the upcoming years. They have either tested or are in the process of testing 5G technology. In order to support the rising demand for 4G LTE and 5G deployment, American Tower plans to construct nearly 2,500 sites globally in 2016.
We believe these efforts have helped American Tower outperform the Zacks categorized Reit- Eqty Trust Other industry on a year-to-date basis. The stock has gained over 10.31% compared to the industry’s growth of 3.25% on a year-to-date basis.
Headwinds
American Tower has a substantially leveraged balance sheet. The company exited the third quarter of 2016 with $18,436.1 million of outstanding long-term debt compared with $17,068.8 million at the end of 2015. Such high debt levels may impede sufficient cash flow generation, which is needed to meet future debt obligations. Moreover, this may keep the company from accessing the debt market and refinancing at suitable rates.
Moreover, high customer concentration, foreign currency exchange rate risks, stiff competition, integration risks and rising operating expenses are near-term risks. Further, the ongoing consolidation trend among telecom and cable TV operators may generate significant financial fluctuations for the company.
Additionally, the company faces threats from emerging technologies like Voice over WiFi (VoWiFi). Such a feature is useful in areas with strong Wi-Fi but low cellular signal strength.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>