Given a portfolio of more than 148,000 communication sites worldwide and the unmatched geographic diversification of its sites, American Tower Corporation (AMT – Free Report) is strategically positioned to capture incremental demand from global 5G deployment efforts, growing wireless penetration and spectrum auctions.
Its Data center business is also performing well. These opportunities are likely to support renewed growth momentum and pave the way for the resumption of dividend increases in the coming year.
Customer concentration and consolidation are a concern in the wireless industry and are likely to weigh on top-line growth.
What’s Aiding AMT?
American Tower’s third-quarter results highlighted the sustained demand for its extensive global communications infrastructure portfolio. The ongoing deployment of 5G networks has driven strong activity in the United States and Europe, reflecting robust growth in these mature markets.
Meanwhile, emerging markets, particularly in Africa, are witnessing a surge in network upgrades and coverage expansion, which has bolstered the pipeline for new business. These developments underscore American Tower’s pivotal role in supporting the evolving needs of the telecommunications industry across diverse geographies. In the third quarter, American Tower’s organic tenant billings growth was a healthy 5% across the United States and Canada and 6.3% in Europe. In Africa, organic tenant billings growth was 11.5% for the period.
American Tower’s data center business is doing well. During the third-quarter earnings release, management noted that “CoreSite delivered another fantastic quarter of new leasing, and is on pace for its third consecutive year of record sales.” This comes amid the growing adoption of hybrid IT solutions and the emergence of AI-driven workloads, which are driving increased demand for data centers.
Apart from having a robust operating platform, American Tower has ample liquidity to support its debt servicing. Its consistent adjusted EBITDA margins, revenue growth and favorable return on invested capital indicate strength in its underlying core business and support its ability to manage its near-term obligations. As of Sept. 30, 2024, AMT had $10.9 billion in total liquidity. The company’s net leverage ratio as of Sept. 30, 2024 was 5.2. With a weighted average remaining term of debt of 5.8 years, it has decent financial flexibility.
American Tower has a disciplined capital distribution strategy and remains committed to increasing shareholder value through regular dividend hikes. In the last five years, American Tower has increased its dividend 15 times, and the annualized dividend growth rate for this period is 11.56%. Moreover, it has a lower dividend payout compared with its industry. Such disbursements highlight its operational strength and commitment to rewarding shareholders handsomely. Check American Tower’s dividend history here.
What’s Hurting AMT?
Customer concentration is high for American Tower, with the company’s top three customers in terms of consolidated operating revenues for the third quarter of 2024 being T-Mobile (TMUS – Free Report) (18%), AT&T (T – Free Report) (15%) and Verizon Wireless (13%). The loss of TMUS, T or Verizon Wireless as customers, consolidation among them or reduction in network spending leads to a material impact on the company’s top line. Moreover, the elevated churn is a concern in emerging markets where the company operates.
The merger between T-Mobile and Sprint, which closed in April 2020, resulted in tower site overlap for American Tower. During the three months ended Sept. 30, 2024, the churn was roughly 2% of its tenant billings, mainly driven by the churn in its U.S. & Canada property segment. Given the contractual lease cancellations and non-renewals by T-Mobile, including legacy Sprint Corporation leases, management expects the churn rate in its U.S. & Canada property segment to remain elevated through 2025.
In Latin America, American Tower is facing a $36 million impact on EBITDA and a $33 million reduction in AFFO compared to its previous outlook due to additional reserves related to Colombian carrier WOM, which is effectively undergoing bankruptcy proceedings. Also, Latin America continues to grapple with challenges stemming from issues with Oi, the potential for further consolidation, and the impact of foreign exchange rate fluctuations. These are limiting the growth projections for Latin America.
Despite the Federal Reserve announcing rate cuts in recent times, the interest rate is still high and is a concern for American Tower. Elevated rates imply a higher borrowing cost for the company, which would affect its ability to purchase or develop real estate. The company has a substantial debt burden, and its total debt, as of Sept. 30, 2024, was approximately $34.95 billion.
Shares of this Zacks Rank #3 (Hold) company have declined 20.2% in the past three months, wider than the industry’s fall of 11.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Image Source: Zacks Investment Research
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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