Here's Why American Tower (AMT) Is an Apt Portfolio Pick
American Tower AMT owns an extensive and geographically diversified communication real estate portfolio. The high capital spending by wireless carriers amid growing wireless penetration, accelerated 5G network deployment efforts and spectrum auctions is likely to keep demand up, poising it well to ride the growth curve. Also, its expansion efforts and solid balance sheet strength bode well.
This April, this Boston, MA-based communications tower REIT reported first-quarter 2024 adjusted funds from operations (AFFO) per share, attributable to AMT common stockholders, of $2.79, which beat the Zacks Consensus Estimate of $2.55 and climbed 9.8% year over year.
Results reflected better-than-anticipated revenues, aided by revenue growth across its Property segment. American Tower recorded healthy year-over-year organic tenant billings growth of 5.4% and total tenant billings growth of 6.3%.
Management raised its outlook for 2024. It now expects AFFO per share in the range of $10.30-$10.53, which indicates a rise at the midpoint of 5.6%. The prior projected range was $10.21-$10.45.
Analysts, too, seem bullish on this Zacks Rank #2 (Buy) company. The Zacks Consensus Estimate for its 2024 AFFO per share has been raised six cents over the past month to $10.53.
Shares of the company have risen 6.3% in the past month compared with the industry’s growth of 1.6%. Given the rise in wireless connectivity usage and the secular trends of the industry, there is immense scope for growth, and AMT is expected to perform well in the quarters ahead. Hence, there is decent room for this stock’s growth.
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What’s Aiding AMT?
Healthy Industry Fundamentals: The advancement in mobile technology, such as 4G and 5G, and the proliferation of bandwidth-intensive applications propel growth in mobile data usage globally. Moreover, the advent of next-generation technologies, including edge computing functionality, autonomous vehicle networks and the Internet-of-Things (IoT), along with the rampant usage of network-intensive applications for video conferencing and cloud services and hybrid-working scenarios, have rapidly increased wireless connectivity usage.
Amid this, wireless service providers and carriers have been deploying additional equipment for existing networks to enhance network coverage and capacity. Given its portfolio of more than 224,000 communication sites worldwide and the unmatched geographic diversification of its sites, American Tower is strategically positioned to capture incremental demand from global 4G and 5G deployment efforts, growing wireless penetration and spectrum auctions.
American Tower has a solid track record of delivering 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. Between 2013 and 2023, American Tower’s revenues from the property segment and adjusted EBITDA grew at CAGRs of 12.8% and 12.5%, respectively. Amid secular growth trends in the wireless industry, the healthy performance is expected to continue in 2024.
Resilient Business Model: 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 5-10 year) tower leases with major wireless carriers with multiple renewal period options. Management expects to generate nearly $60 billion of non-cancellable customer lease revenues over future periods.
In addition, American Tower 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 managing such networks are substantial and recurring.
Balance Sheet Strength: American Tower has a robust operating platform and ample liquidity to support its debt servicing. Its consistent adjusted EBITDA margins and revenue growth, as well as favorable return on invested capital, indicate the strength of its underlying core business and support its ability to manage its near-term obligations.
The company's net leverage ratio as of Mar 31, 2024 was 5.0. As of Mar 31, 2024, the company had $9.3 billion in total liquidity. In addition, with a weighted average remaining term of debt of 5.8 years, it has decent financial flexibility.
Dividend: American Tower has a disciplined capital distribution strategy and remains committed to increasing shareholder value through regular dividend hikes. It has consistently increased its quarterly dividends since 2013, and its average annual dividend per share has grown around 20% since then. Also, in the last five years, American Tower has increased its dividend 18 times, and the annualized dividend growth rate for this period is 13.77%.
Moreover, it has a lower dividend payout compared with its industry. Such disbursements highlight its operational strength and commitment to rewarding shareholders handsomely. Further, backed by robust operating fundamentals, between 2013 and 2023, American Tower’s consolidated adjusted FFO (AFFO) witnessed a CAGR of 10.6%. Hence, with these factors in place, we expect the company’s dividend distribution to be sustainable in the upcoming period.
Other Stocks to Consider
Some other top-ranked stocks from the REIT sector are Rexford Industrial Realty, Inc. REXR and OUTFRONT Media Inc. OUT, each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Rexford Industrial Realty’s 2024 FFO per share stands at $2.34, which indicates an increase of 6.85% from the year-ago period’s actual.
The Zacks Consensus Estimate for OUTFRONT Media’s 2024 FFO per share is pegged at $1.71, which suggests 4.27% year-over-year growth.
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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