American Tower Corp. (NYSE: AMT) is a leading Real Estate Investment Trust (REIT) that independently owns, manages, and constructs multi-tenant wireless and broadcast communications infrastructure worldwide. Its communications real estate spans 224,000 sites and plays a vital role in the US data center space, with tenant billings serving as AMT’s core revenue driver. The company aimed for a decade of sustainable revenue growth in 2020 and a 10% annual increase in adjusted funds from operations (AFFO)/share driven by business growth, margin expansion, and efficient capital allocation. Although AFFO/diluted share has increased since then, several factors, such as forex, high financing costs due to rate hikes, and churn linked to the Spring/T-Mobile combination, have weighed down performance in recent years. Despite expecting a healthy projected tenant billings growth of 5% for 2024, it is unlikely to complement the expected 5% growth in AFFO levels. However, the REIT’s large portfolio is appreciating in value as it is becoming more difficult to secure sites amid more zoning for towers and strong NIMBY (not in my backyard) forces. Moreover, the growth of intrinsic data consumption over the decades, along with higher future forecasts, also bodes well for AMT’s global business. Here, we summarized a May bullish thesis published by juice835 on Value Investors Club.
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Despite AMT share prices staying muted in the past five years, the thesis believes it offers an attractive entry point at present. Apart from potential tailwinds around 5G networks, dynamic data applications growth, strong unit economics and a proven track record, AMT stands to benefit from the sale of its loss-bearing India operations in a multibillion-dollar deal expected to close this year. The investment in India failed due to faster-than-expected carrier consolidation and stiff competition. The bullish thesis also highlights catalysts like a drop in the Sprint-linked churn in the near future, a strengthening balance sheet within its target leverage range, and signs of higher future business with main carrier customers due to more data usage requirements to drive further growth. AMT management highlighted that the services segment recorded expected year-over-year growth due to an uptick in the application pipeline. The jump in average annual carrier CapEx to almost $36 billion annually translated to $230 million in YoY colocation/amendment growth for AMT. The company is also relying on the signs of top clients proactively engaged in network upgrades and rollout as the 5G cycle broadens out in line with expectations.
AMT has efficiently allocated capital for years and has been on a global acquisition spree, announcing several new projects and authorizing opportunistic buybacks. AMT trades at a historically low 16x FFO, and management expects 5G, growing mobile data consumption, and associated carrier investments to keep lifting demand for its assets.
AMT is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 56 hedge fund portfolios held AMT at the end of the first quarter, the same as the previous quarter. While we acknowledge the potential of AMT as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as AMT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
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