Analysts Predict Q3 Earnings of Tower Stocks Prior to Q2 Ending. Huh?

Inside Towers Stock Analyst Bill Grove

reported Jefferies Group cut their Q3 2017 EPS estimates for shares of American Tower Corp in a research report issued on Tuesday. Jefferies Group analyst M. Mccormack said the real estate investment trust will earn $1.52 per share for the quarter, down from their prior estimate of $1.57. Jefferies Group also issued estimates for American Tower Corp’s Q4 2017 earnings at $1.54 EPS and FY2017 earnings at $6.11 EPS.

So to a neophyte stock observer, where do they get off projecting quarterly estimates so far in advance?

“Seven analysts have EPS estimates for every quarter for the rest of this year,” said Inside Towers Stock Guru Bill Grove. “Two analysts even have them for the 1st Quarter of next year. This is pretty typical for analysts to model out the next four to eight quarters,” Grove said.  “And, this business is well suited to modeling future EPS because it is so predictable. The problem is that acquisitions and other changes, like the renegotiation of that master lease agreement, can really mess with the numbers,” he said. “By the way, it looks like that guy may have been the high estimate in the street and was simply bringing his estimates more inline with everyone else.”

Grove pointed out these aren’t really EPS numbers, they are AFFO numbers. Again, the neophyte asks, what are AFFO’s?

“Adjusted Funds From Operations,” Grove said. “They refer to the financial performance measure primarily used in the analysis of real estate investment trusts (REITs). The AFFO of a REIT, though subject to varying methods of computation, is generally equal to the trust’s Funds From Operations (FFO), with adjustments made for recurring capital expenditures used to maintain the quality of the REIT’s underlying assets. The calculation takes in the adjustment to GAAP straight-lining of rent, leasing costs and other material factors,” Grove said.

Grove said he looks at AFFO, EBITDA, EV/EBITDA, and leverage.  “I think if you look at all of these numbers and the organic growth numbers in the company’s various geographic regions, you have a very good understanding of how the company is doing.  AMT does a very good job of reporting these metrics,” he said.

April 17, 2017


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