The owner and operator of the largest independent portfolio of wireless communications and broadcast towers in North America, American Tower Corp (NYSE:AMT), is only up 0.74% year to date, a far cry from the 15.35% return offered by the Dow Jones Industrial Average.
As of September 2012, the company operated a tower portfolio of roughly 50,699 sites in the United States, Mexico, Brazil, Chile, Columbia, India, Peru, Ghana, and South Africa. The company’s core business appears financially efficient, with a TTM profit margin of 19.70%. Based on market capitalization, the company is valued at $30.78 billion.
With American Tower trading within a minor rally of all-time highs, is this nontraditional REIT a strong buy for a long-term portfolio, or should investors stay away from this company?
Strengths:
–Predictable & Stable Business Model: The company signs service providers to long-term leases, usually five to 10 years, that contain annual lease rate escalations of 3% to 5%. As a result of the guarantee of a consistent revenue stream for a decade to come, American Tower Corp (NYSE:AMT)’s business model is extremely predictable and stable, allowing the company to pay out a dividend yielding 1.39%.
–Institutional Vote of Confidence: 92% of shares outstanding are held by institutional investors, representing over $25 billion in investment and displaying the confidence some of the largest investors in the world have in the company and its future.
–Explosive Revenue Growth: In 2002, American Tower reported revenue of $788 million; in 2011, the company announced revenue of $2.44 billion, representing year over year annual growth of 13.51%, a strong trend that should continue into the future with projections placing 2016 revenue at $3.83 billion. This growth has been a result of rapid expansion and aggressive reinvestment by the company in new properties.
–Cash Flow Position: In 2010, American Tower Corp (NYSE:AMT) generated $834 million in cash flow, exemplifying the financial strength of the company.
–Margin Expansion: Over the past decade, the company’s profit margin has expanded from extreme negative territory in 2004 to the current level around 20%.
Weaknesses:
–Net Debt: The company’s $382 million in cash and cash equivalents is outweighed by its $7.35 billion debt load, resulting in a net debt of $6.96 billion, 23.88% of total market capitalization, a minor financial weakness of the company.
Opportunities:
–Increased Data Usage: Global data usage has skyrocketed over the past few years, with further accelerated growth projected, and with this increased data usage comes opportunity for American Tower Corp (NYSE:AMT) as increasing data usage requires service providers to add capacity to cell sites, as well as expand their networks, both of which benefit the company.
–India: India has been a region of rapid expansion for the company, with American Tower entering into a build to suit agreement in India; the initial plan is for 200 towers for $15 million, with the company completing its first 52 towers during the 2008 third quarter and later purchasing XCEL Telecom Private Limited in May 2009. Just after the end of the 2008 third quarter, the company purchased 326 tower sites in India and in August 2010 closed a deal to acquire Essar Telecom, with 4,629 towers in India. Further growth in India is projected and provides incredible opportunity for the company.
