Anders Bylund of The Motley Fool, a multimedia financial-services company, explains why AMT’s stock price could rise. “American Tower investors have many reasons to believe in continued growth. Here are three of the biggest reasons to get excited about American Tower today.
Stability. I know, I know… cheering a growth stock like American Tower for its stability is like admiring Peyton Manning for his tackling ability: Defense may win championships, but some players just don’t belong in that discussion. But the truth is, American Tower (and its major rivals) backs up its revenue and profit growth with an unusually stable business model. The idea is simple: Buy or lease some strategically located patches of land, build cell or broadcast towers on them, and look for customers to fill these towers with radio equipment. Broadcasters and wireless carriers sign long-term contracts on these tower-space leases — the average amortization period on American Tower’s current customer contracts is 16 years right now. Buy a share of American Tower, and you know exactly what you’ll get for the foreseeable future.
Free cash flows. Here’s where American Tower starts to separate from its industry peers. The company collects more revenue than Crown Castle or SBA Communications, and tops this advantage with unmatched cash profit margins. The end results: American Tower can look back at nearly $1 billion in trailing free cash flows, which is the highest total in the company’s history. Free cash flows are the lifeblood of any business, and a popular metric on which investors base their valuation of a firm. American Tower’s share prices have soared faster than its cash flows in recent years, leading to a premium valuation of 40 times trailing free cash flows.
International opportunity. Despite its all-American name and, in the face of Crown Castle International ‘s globetrotting moniker, American Tower is actually the most geographically diverse tower operator on the market. You see, the company’s 28,500 actual American towers are matched by another 40,700 towers on foreign soil. American Tower owns or operates 12,000 sites in India, 8,700 in Mexico, 6,900 in Brazil, to name a few of its largest overseas markets. Fifty-nine percent of American Towers’ towers are not American at all. There’s nothing wrong with focusing on North America, where another round of carrier network upgrades will start in 2015; but American Tower is chasing opportunities in growth markets that its peers simply ignore. Expect American Tower to continue growing in overseas markets. This is particularly important as wireless giants attempt to cover the next billion unconnected consumers with wireless phone and data services. They’ll need tower operators to get this done, and American Tower is poised to fit the bill.
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