Bull Case for American Tower: We’re Going Mobile
The fast-changing world of mobile technology creates new winners and losers every day, as anyone celebrating his good fortune in Apple (AAPL) or crying over his lost investment in Research in Motion (RIMM) can attest. But it’s all good for American Tower (AMT), a company that builds wireless towers to accommodate the rampant popularity of smartphones and tablets. The company’s doubled its share price since mid-2009, and few believe those nice gains are anywhere close to finished, despite an already garish stock chart.
Some 19 industry analysts currently recommend buying American Tower shares, and four others suggest an overweight position in the shares. No one suggests selling these shares. YCharts Pro gives American Tower strong marks for fundamentals and an average rating for share price value. “Average” is a pretty generous rating on shares with higher valuations than all but a handful of other large caps. American Tower trades at about 52 times earnings -- a lofty PE ratio -- and 10 times sales. But it doesn’t seem so bad compared to competitors SBA Communications (SBAC), which doesn’t make money yet, and Crown Castle International (CCI), which doesn’t make much.
The exuberance for American Tower extends from the potential of mobile technology, which is one of the biggest growth industries the world has seen since the Internet. Tech companies now live or die by their abilities to create either the hardware for cell phones and tablets or the software for customers to use their products on those devices. Qualcomm (QCOM) rose to fame by creating great chips for cell phones while Intel (INTC), the biggest chip maker in the world, was still preoccupied with laptops. Facebook (FB) is a goner if it can’t devise a profitable mobile format.
These skirmishes are inconsequential for American Tower, which can ride the mobile growth no matter which phones or games or data-plan providers fuel it. All that signaling equipment has to go on a tower, and American Tower owns and collects lease fees on some 47,000 of them in the U.S., South America, India and Africa. With a market cap of $27.9 billion, it’s the biggest company in the business.
American Tower is not so much a tech company as a REIT, a status it formally achieved in December. The company declared a 2-cent per share distribution in the first quarter since the conversion and a 22-cent distribution in the second, which on an annualized basis would put its yield well below 1.5%. But REITs must pay at least 90% of profits to shareholders in dividend-like distributions, so growth in earnings would raise the yield. Earnings per share estimates for 2012 are about 41% higher than 2011’s result, extending the rampant growth of recent years.
Analysts generally believe there’s plenty of tower business to go around among the three major players. They particularly like American Tower’s international expansion.
For investors, the downsides to the REIT moniker includes paying taxes on those distributions and the vulnerability to rising interest rates. While no one expects interest rates to rise soon, there’s usually a lot of selling in REITs when that does happen. Until, then, it’s nice to be the one just holding all that mobile equipment instead of inventing it.