Inside Towers’ Tower Stock Analyst: Bill Grove
Disclosure: Grove Investment clients have positions in AMT and CCI.
Markets Daily reported Wall Street analysts are anticipating American Tower (NYSE:AMT) to report earnings of $1.43 for the current fiscal quarter. This is based on a Zacks Research poll of analysts and their estimated consensus mean number. On a scale of 1-to-5 where 5 is a Strong Sell and 1 is a Strong Buy, AMT sports a 1.07 rating based on the recommendations of 12 brokers, according to Markets Daily.
“I certainly hope that all of these analysts are correct,” Inside Towers stock analyst Bill Grove said. “It does give me comfort that the analysts as a whole view the stock so favorably and that, on average, they see about 25 percent upside this year,” Grove said.
“Having said that, in the words of Jim Cramer, it strikes me that AMT is “not a Trump stock!” Grove said. A “Trump stock” is a stock that will be helped by Trump’s policies and generally thought to benefit from increases in economic growth, inflation and interest rates.
“Since election day” Grove said, “investors have been selling consumer staples, utilities and REITs and buying financials and cyclicals. In some cases, and I would put the tower stocks in this category, it is more a matter of money leaving broad sectors than the actual businesses being hurt. But clearly higher interest rates are, at the very least, a mild negative.”
“If you believe that interest rates continue to rise, that will almost definitely be a weight on the tower stocks,” Grove said. “I have always viewed these stocks as bond surrogates — albeit bonds with very attractive characteristics. Their cash flows are very predictable and consistent. Meaningful changes in interest rates do affect their valuations. But, one interesting way to think about these stocks is that for every ten months that their stock price remains unchanged – they become one multiple cheaper,” he said. “I am talking about EV/EBITDA and assuming about a seven percent organic growth rate.”
“So, with these stocks having already become two-to-three multiples cheaper over the last year or so (due to declines in their stock prices and growth in their business) if the stocks don’t perform over the next year or two, they would start to look really cheap,” Grove said. “Multiples would have gone from around 20 a year ago to almost 15. All the while you are collecting generous dividends. I like that dynamic,” he said.
January 10, 2017
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