American Tower Corp (AMT): This Stock Should Trade at a Premium to its Peers

Peer comparison

American Tower’s peers include Crown Castle International Corp. (NYSE:CCI) and SBA Communications Corporation (NASDAQ:SBAC). Based on Yahoo Finance data, all three stocks are similarly valued at 20-22 times EV/EBITDA. All three stocks are highly geared, with Crown Castle and SBA Communications having debt-to-equity ratios of 365% and 770% respectively.

Crown Castle is the largest domestic tower operator, with about three quarters of its towers located in the top 100 Basic Trading Areas (BTAs). In comparison, American Tower and SBA Communications have 62% and 58% of their towers located in the top 100 BTAs respectively. American Tower Corp (NYSE:AMT) is more geographically diversified with about 30% of its revenues derived outside the U.S., while Crown Castle has only 6% of its revenues generated from its sole international market Australia. Crown Castle currently does not pay dividends like American Tower, which is a REIT. However, Crown Castle has plans to convert into a REIT in 2015-2016.

SBA Communications has plans to grow its current non-domestic revenue contribution of about 6% in fiscal 2012. It recently acquired 800 wireless towers in Brazil at the end of 2012. I am negative on SBA Communications for two reasons. Firstly, I fear that it might prioritize acquisitions over share buybacks as part of its international expansion strategy. Secondly, it is the most highly leveraged of the three, exposing it to higher credit risk and an increased probability of dilutive equity issuance.

Conclusion

There is no doubt that communication tower leasing is a good business, given strong free cash flow generation and barriers to entry for the companies operating in the industry. Among the three major listed players, American Tower stands out for its exposure to international markets and its relatively stronger balance sheet vis-à-vis its peers. American Tower Corp (NYSE:AMT) should trade at a premium to its peers based on these characteristics and current valuations offer an attractive entry point.

The article This Stock Should Trade at a Premium to its Peers originally appeared on Fool.com and is written by Mark Lin.

Mark Lin has no position in any stocks mentioned. The Motley Fool recommends American Tower . The Motley Fool owns shares of American Tower. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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