American Tower in Asia: ‘Keep Calm and Carry On’

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That’s the advice of UBS analysts Batya Levi and John Hodulik offered yesterday after recently hosting meetings with American Tower management in Asia. “The takeaways support our bullish stance on the company. AMT expects to see sustainable growth over the next several years as carriers continue to deploy network assets to support coverage, capacity and peak-speeds as mobile video consumption becomes pervasive. We believe the company has good visibility to post 7-8% organic revenue growth, double-digit AFFO/sh growth and 20%+ dividend growth annually for the foreseeable future.”

The UBS team also noted that geographic diversification is driving stable organic growth for American Tower. “Wireless capex in the U.S. remains robust at $31 billion, flat annually, as higher tapex at Verizon and T-Mobile offsets stagnant activity from AT&T and Sprint.” They felt that “should drive US organic revenue growth of 5.5 percent in 2Q/3Q, before exiting the year at 6 percent. Verizon towers (29 percent of the domestic portfolio) are growing at 6 percent currently, driven mostly by amendment activity.

Management expects growth to accelerate to 8 percent + by year-end on these sites and to 9-10 percent LT, assuming one incremental tenant over 10 yrs. We believe this acceleration, combined with AWS-3 deployments and FirstNet, could drive US growth to 6%+ in 2017.” They concluded that meanwhile, American Tower stands to benefit from its geographic diversification “as international growth trends better than management’s prior targets.”

The analysts said they are “bullish” on American Tower and noted that it has a pipeline of catalysts to support long term growth for macro towers, and that it “continues to believe its global tower business provides a higher rate of return than ancillary services (i.e. DAS, small cells, fiber connectivity etc.) given the lower technology risk and long-term nature of its assets.” They said that model “should provide sustained growth in revenue/profitability,” and that management is committed to making disciplined capital allocation decisions to support this trend. While 5G will initially be tested in dense urban markets (similar to how 2G, 3G, or 4G were initially deployed), “management believes the roll-out will expand to macro networks in 2020 and beyond.” UBS maintains its “Buy” rating on American Tower.

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