American Tower Up 20.6% in 3 Months: Will the Trend Last?

Shares of American Tower Corporation have risen 20.6% in the past three months compared with the industry's growth of 11.5%.

The company is poised well to ride the growth curve with wireless carriers increasing capital expenditure due to rising wireless penetration, accelerated 5G network deployment efforts and spectrum auctions. The long-term leases with its tenants assure stable cash flows. Moreover, its continued efforts toward macro-tower investments are encouraging. A decent financial position also supports its growth endeavors.

Late in July, American Tower reported adjusted funds from operations (AFFO) per share, attributable to AMT common stockholders, of $2.79, which surpassed the Zacks Consensus Estimate of $2.53 and climbed 13.4% year over year. Results reflected better-than-anticipated revenues, aided by revenue growth across its Property segment.

The REIT has also raised its 2024 outlook. It expects AFFO per share in the range of $10.48-$10.72, which indicates a rise at the midpoint of 7.4%. The prior projected range was $10.30-$10.53.

Image Source: Zacks Investment Research

Let us decipher the factors behind the surge in the stock price and check whether this trend will last or not.

The advancement in mobile technology, such as 4G and 5G networks, and the proliferation of bandwidth-intensive applications have driven growth in mobile data usage globally. Also, the rampant usage of network-intensive applications for video conferencing, cloud services and remote-working scenarios has fueled the rise.

Given this backdrop, American Tower's extensive and geographically diversified communication real estate portfolio is well-poised to gain from the rise in capital spending by wireless carriers on the incremental demand from global 4G and 5G deployment efforts, growing wireless penetration and spectrum auctions.

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 five to 10 years) tower leases with major wireless carriers with multiple renewal period options. Management expects to generate nearly $57 billion in non-cancellable customer lease revenues in the future.

Moreover, American Tower, which currently carries a Zacks Rank #3 (Hold), has a solid track record of delivering a 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.

In the second quarter of 2024, the company recorded healthy year-over-year organic tenant billings growth of 5.3% and total tenant billings growth of 6.1%. Also, in the second quarter, revenues from the property segment and adjusted EBITDA increased 4.6% and 8.1% on a year-over-year basis, respectively.

Moreover, American Tower's focus on macro-tower investment opportunities and gaining scale across global markets has paid off well. 

Between 2013 and 2023, American Tower's revenues from the property segment and adjusted EBITDA witnessed a CAGR of 12.8% and 12.5%, respectively. Amid secular growth trends in the wireless industry, healthy performance is expected to continue in 2024.

On the balance sheet front, AMT exited the second quarter of 2024 with $9.2 billion in total liquidity, and its net leverage ratio was 4.8. With a weighted average remaining debt term of 5.8 years, it has decent financial flexibility.

Solid dividend payouts are arguably the biggest enticements for REIT shareholders, and American Tower remains committed to that. In the last five years, American Tower has increased its dividend 17 times, and the annualized dividend growth rate for this period is 12.74%. This is attractive to income investors and represents a steady income stream.

However, customer concentration and consolidation in the wireless industry are the major concerns in the near term and are likely to weigh on top-line growth.

Stocks to Consider

Some better-ranked stocks from the REIT sector are Terreno Realty Corporation TRNO and Cousins Properties Incorporated CUZ, each carrying a Zacks Rank #2 (Buy) at present.

The Zacks Consensus Estimate for Terreno Realty's 2024 FFO per share has moved marginally northward in the past week to $2.29.

The Zacks Consensus Estimate for Cousins Properties' ongoing year's FFO per share has increased marginally over the past month to $2.66.

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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