On Dec 5, we issued an updated research report on American Tower Corp. (AMT - Free Report) . Let’s have a look at the overall performance of the stock.
American Tower continues to benefit from increased investment of wireless carriers in 5G networks. Next-generation 4G LTE, 5G networks and increased usage of smartphones and tablets are driving demand for tower leasing. Additionally, the company’s investments in Asia are paying off. Further, the company’s tower buyouts in emerging markets and long-term tower leases with major wireless carriers will drive the top line.
American Tower’s Indian, EMEA and Latin American operations account for almost 50% of organic core revenue growth. Toward this end, American Tower is enhancing prospects in India with the acquisition of tower businesses from Vodafone India and Idea Cellular. Vodafone India is the subsidiary of U.K.-based Vodafone Group plc (VOD - Free Report) .
Notably, America Tower’s majority owned subsidiary in India — ATC Telecom Infrastructure Private Limited (ATC TIPL, formerly Viom) — plans to add 20,000 communications sites. Per the deal, Vodafone India and Idea Cellular will receive service level and process efficiency benefits. ATC TIPL will secure certain preferential rights of new businesses on existing portfolio and sites acquired in certain Indian markets. The transactions are expected to generate approximately $320 million in property revenues and $120 million in gross margin within a year for American Tower. The deal is expected to close in the first half of 2018, subject to customary closing conditions and regulatory approvals from respective authorities.
American Tower’s efforts to reward stockholders with a quarterly cash distribution of 66 cents per share of the company’s common stock look impressive. The distribution was paid on Oct 17 to stockholders of record at the close of business as of Sep 29.
For 2017, American Tower has raised outlook. The company anticipates property revenues in the range of $6,510-$6,580 million, reflecting midpoint growth of 14.6%. Net income is expected between $1,340 million and $1,380 million, reflecting midpoint growth of 40.2%. Adjusted EBITDA is anticipated in the range of $4,070-$4,110 million, reflecting midpoint growth of 15.1%. Consolidated AFFO is expected in the range of $2,870-$2,910 million, reflecting midpoint growth of 16.0%.
Estimates Trending Up
We note that the sales and earnings per share (EPS) estimate for American Tower has moved up for fourth-quarter 2017 and first-quarter 2018.
Sales growth for fourth-quarter 2017 and first-quarter 2018 are estimated to increase 9.9% and 8.8%, respectively. For 2018, sales are expected to rise 7.9%.
The EPS growth for fourth-quarter 2017 and first-quarter 2018 is estimated to increase 257.7% and 172.8%, respectively. For full-year 2018, EPS is expected to soar 12.9%.
Positive Earnings Surprise
American Tower delivered a positive earnings surprise of 3.59% in the last reported quarter. Moreover, the company’s earnings beat the Zacks Consensus Estimate in all of the previous four quarters, with an average of 3.94%.
Despite such positives, the company faces headwinds.
The company has a substantially leveraged balance sheet. At the end of the third-quarter 2017, the company had $799.47 million in cash and cash equivalents and around $18,581.4 million of outstanding long-term debt compared with $787.16 million and $18,294.7 million, respectively, at the end of Dec 2016. Such high debt levels may impede cash flow generation, which is required to meet future debt obligations. Moreover, this may keep the company from accessing debt market and refinancing at suitable rates.
High customer concentration is likely to affect the company’s top line. Expansion in global market increases the company’s exposure to foreign currency exchange rate risks. Stiff competition, integration risks and rising operating expenses are other headwinds. Additionally, the company’s upcoming results face threats from emerging technologies like Voice over WiFi (VoWiFi). Also, American Tower competes fiercely with tower operators like Crown Castle International Corp (CCI - Free Report) and SBA Communications Corp (SBAC - Free Report) .
We believe that such headwinds have led to the company’s disappointing price performance. Over the past three months, the stock has lost 4.2% compared with the industry’s decline of 0.7%.
In view of the above write-up, we advise investors to wait for a better entry point before accumulating shares. The company’s Zacks Rank #3 (Hold) suggests the same. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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