In 2021 March the stock was at its highest point; a little more than one year later and the stock is down by -29% right now. About on the same level as it was back in 2020 April. Is the stock a buy? Let’s find out with a deep review and analysis!
American Tower Corporation, one of the largest global REITs, is a leading independent owner, operator, and developer of multitenant communications real estate with a portfolio of approximately 219,000 communications sites.
Market Cap: $109b S&P Rating: BBB-
📰Current Situation and recent news:
"- The infrastructure REIT has been under a lot of pressure recently.
- The broader market has cooled off, driven by inflation and interest rate fears.
It spent more than $20 billion on acquisitions last year, including buying former data center REIT CoreSite Realty for $10.1 billion. That deal was a notable move away from its core cell tower business, adding significant integration risk.
- American Tower posted solid first-quarter numbers. The REIT's total revenue soared 23.2% to nearly $2.7 billion, while its adjusted funds from operations (AFFO) rose 6.1% to almost $1.2 billion." (https://finance.yahoo.com/)
Currently, AMT is traded with a P/FFO of 22.7. This is the P/E ratio that we use for REITs. As a rule of thumb, this number has to be under 25 to be a good choice for a conservative investor. Analysts put a „Buy” sign on the stock which is understandable but the stock isn’t yet under the fair value or in the margin of safety category.
Past performance(!)📈
American Tower has been a standout performer over the years. Since converting to a real estate investment trust (REIT) in 2012, it has produced a nearly 15,5% annualized total return. That has outperformed the broader market, with the S&P500 index delivering a 14.8% annualized total return during that timeframe.
The Total Return on my investment would be 340% over the last 10 years! Excellent performance!
🏚️Quick Note: What is a REIT? REITs, or real estate investment trusts, are companies that own or finance income-producing real estate across a range of property sectors. These real estate companies have to meet several requirements to qualify as REITs. REITs must payout at least 90 % of their taxable income to shareholders(dividends)—and most payout 100 %. In return, shareholders pay the income taxes on those dividends.
Since 2019, the market has put a premium valuation on this company. The orange line is the line where you should buy the stock or under it with a good margin of safety. As you can see since the date I mentioned the price(black line) was always above the orange line.
The dividend situation at its best 💰
AMT pays currently a decent 2.36% dividend yield and it has a dividend growth record of 12 years! This REIT isn’t the highest payer but it is increased with the biggest percentage after year after year. The 5-year average yield on the stock is 2.11% so as of now you can get it above the average yield.
AMT is increasing the dividend yield like a monster. Take a look at the 5-year DGR and 10-year DGR, they are increasing their yield on average by 15-17% by every year!
The massive amount of free cash flow is the next key point about American Tower. AMT is the single most free cash flow generator in the world on the daily basis, allowing them to reinvest, pay down debt and expand the company! If we are already here by the Cash Flow then we can take a look at the Payout Ratio which is also an important measure.
I consider AMT as a small dividend payer but a grower company so I want the payout ratio under 60%. AMT is doing a good job here, in the last three years it was always under 60%, but before was even lower in the 30% range.
Share buybacks can be a silent killer. If the company does not buy back shares but dilutes them then your investments are worth less over time. It is like a slice of cake where your slice will be smaller if the company dilutes its shareholders.
Most REITs dilute their shareholders because of how a REIT works, and I can imagine what are your thoughts…They are buying back shares you can think but I was surprised as you will right now. They are issuing shares. Only by a small percent but they are doing it. In this case with AMT, I don’t see this as a bad thing because they are a REIT and they want to expand and it is only just a small percentage.
Debt 🏧
Debt is a thing to worry about. AMT has a 470% Debt to Equity ratio which isn’t looking good. It has increased more than 200% in the last five years. It’s not well covered by the operating Cash-flow. The only positive thing is that the interest payment is well covered by EBIT.
The long-term Debt to Capital ratio is 80%.
Future and Forecasting 🔮
„AMT while it's facing some near-term headwinds, a long-term tailwind should drive strong growth in the coming years, powered by 5G. The CEO stated on the first-quarter conference call that he expects "strong growth on our tower assets, both in the near and longer-term."
The future does look decent. Based on 20 analysts the estimated future growth rate is 7,8% yearly. Estimates aren’t the same as the real return in the last 10 years. Hopefully, AMT will beat the estimates. But analysts have a scorecard also which tells me that they are 100% right about the estimates of this particular company. (https://www.fastgraphs.com/)
Fair value ⚖️
I use the most widely accepted method to calculate the fair value of a company which is the Discounted Cash Flow(DCF). It is based on the premise that the fair value of a company is the total value of its future free cash flows (in this case I use AFFO) discounted back to today's prices. I use analysts' estimates of cash flows and assume the company grows at a stable rate into perpetuity.
(Total Equity Value = Present value of next 10 years cash flows + Terminal Value = $50 144 + $127 758 = $177 902,41
Equity Value per Share (USD) = Total value / Shares Outstanding = $177 902 / 456 = $389,9)
Undervalued by 39,2%. The current fair value is $389,9.
Competitors 🏁
CROWN CASTLE INTERNATIONAL CORP (CCI) – Bigger dividend yield, little bit less debt, better future growth expectations
SBA COMMUNICATIONS CORP (SBAC) – Overvalued right now, less than 5 years of dividend record, smaller yield significantly better growth rate
Risks and the overall takeaway 🗼
AMT was for me attractive back in the time, right now it is more attractive for me and the recent slump in the stock price looks like an excellent opportunity to pick up shares of this fast-growing REIT at a lower valuation and higher dividend yield; but I’m a little bit afraid about the debt what they have.
Although there is only a very small percentage that they are going to have serious problems with the debt I’m worried a little bit and I would like to see the stock at a lower valuation. If this pick would be one of the main pillars of your portfolio then I would wait a little bit more. Otherwise, if it would be only a small percentage of your portfolio then it is a BUY right now! 💵
Disclosure: I have no stock, option, or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article.
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Hope this was useful for you! If so, hit the like button to make me feel good. Please note that the above content is not investment advice and shall be considered only for informative purposes.
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