The earnings estimates for this wireless tower REIT were recently raised by 13 analysts.
American Tower Corporation (AMT)
From Argus Weekly Staff Report
We are reiterating our BUY rating on Focus List selection American Tower Corporation. (AMT) and raising our price target to $211 from $195. American Tower operates wireless towers, which benefit from annual lease rate increases paid by their media and telecom tenants. We expect mobile data usage to grow 50% annually over the next five years, which should increase the demand for tower leases.
AMT has a solid record of growth and profitability, and stands out among publicly-traded tower operators based on its size, margins, FFO growth rate, and high-quality assets. We also like its international expansion efforts. However, AMT operates with relatively low cash flow compared to debt, and debt/capitalization runs above 60%.
The company has increased its quarterly cash dividend by 20% over the past year to $0.84 per share, or $3.36 annually. It has also raised the dividend at an average annual rate of 23.3% over the last five years. AMT continues to target annualized dividend growth of more than 20%.
American Tower’s Property segment accounted for almost 99% of revenue in 1Q19. Positive trends in this business include growing demand for AMT sites from wireless service providers, low maintenance and capital expenditures, high operating margins, and high lease renewal rates.
Revenue and margin growth are driven by contractual rent increases. Leases have 5- to 10-year noncancelable terms and payments that increase on a fixed schedule, at a 3.0%-3.5% rate at U.S. sites and at an inflation-indexed rate in international markets.
We are maintaining our 2019 AFFO estimate of $7.81 per share, reflecting outperformance in the first quarter, offset by our expectations for slightly slower international growth. We are raising our 2020 estimate to $8.44 from $7.34 per share due to AMT’s aggressive acquisition activity, including the Colo ATL datacenter purchase.
Additionally, we are raising our 2019 revenue estimate to $7.4 billion from $7.3 billion, and maintaining our 2020 estimate at $7.8 billion.
AMT shares have traded in a range of $135-$198 over the last 52 weeks and are currently trading above the midpoint of this range. AMT trades at 27.7-times our 2019 NAREIT FFO per share estimate, above the five-year average of 20.8 and the peer median of 25.7. We like the company’s growth prospects and believe that a higher price/FFO multiple is appropriate based on the company’s solid revenue and cash flow growth.
Our revised target of $211 implies a multiple of 30.3-times our 2019 NAREIT FFO per share estimate, which we feel is appropriate given the company’s growth profile.
Jim Kelleher, CFA, Argus Weekly Staff Report, www.argusresearch.com, 212-425-7500, May 16, 2019