Company Reports

Despite the recent slowdown in US wireless carrier spending and industry consolidation in several countries, American Tower capped a solid 2023 with a good fourth quarter, and the firm’s growth outlook for 2024 is mostly encouraging. The market may be disappointed with a dividend payment that will tick down in 2024 from the annualized fourth-quarter level, but we view this positively as well, as it should help the company strengthen its balance sheet. We are maintaining our $215 fair value estimate and think the stock is attractive.

We think American Tower's strategy to diversify its tower portfolio globally is a good one, as the firm is primed to benefit from the continually increasing demand in mobile data worldwide. However, we think the firm “sold low” in agreeing to divest its India business and will miss out on significant potential in that country. We also don’t think the firm will be helped by veering into the data center business as it did in 2022.

American Tower has agreed to sell its entire India business to Brookfield Asset Management for $2.0 billion-$2.5 billion. The firm expects the deal to close in the second half of 2024. India had been a huge detriment for American Tower, but we believe the difficulties had largely passed, and we are bullish on tower prospects in the country. The selling price does not reflect the long-term value we projected from American Tower’s presence in India, leading us to reduce our fair value estimate for the firm to $215 per share from $225.

We think American Tower's strategy to diversify its tower portfolio globally is a good one, as the firm is primed to benefit from the continually increasing demand in mobile data worldwide. However, we think the firm “sold low” in agreeing to divest its India business and will miss out on significant potential in that country. We also don’t think the firm will be helped by veering into the data center business as it did in 2022.

American Tower had an excellent third quarter and again increased its full-year sales and profit. While some of the current quarter’s outperformance was due to timing and nonrecurring items, strength in the core tower-leasing business is apparent throughout American Tower’s global footprint, and the cost management that has boosted margins should be durable. Management damped down 2024 expectations slightly and implied what is already widely known—that annual 5G investments by U.S. carriers won’t return to their 2022 peaks any time soon. The firm also intends to pause dividend growth in 2024 amid the uncertain interest rate environment in an effort to pay down debt, which we think is prudent. In our view, the stock’s precipitous downfall anticipates a much more dire outlook than is likely to play out. Despite today’s "pop," American Tower remains significantly undervalued relative to our $225 fair value estimate.

We think American Tower's strategy to diversify its tower portfolio globally leaves it best positioned among the three U.S. tower companies, as it is primed to benefit from the continually increasing demand in mobile data worldwide. However, we don't think veering into the data center business, which it did with its acquisition of CoreSite, will pay off, and it distracts from the tower focus we liked for American Tower.

After a long stretch of overvaluation, sentiment around the wireless tower industry has swung the other way. Each of the five independent tower firms we cover globally is now undervalued relative to our fair value estimates and trading in a 4- or 5-star range. Though the stocks have been volatile, especially around interest rate movements, we haven’t seen much change to the companies’ fundamentals. We believe tower firms have long-term secular tailwinds, great business models that include contractual recurring revenue with annual escalators, and narrow moats. In our view, the market has presented a compelling opportunity.

American Tower provided a similar picture of the current U.S. tower leasing environment as peer Crown Castle last week—activity is slowing, but it is confident that it will continue hitting its leasing growth targets in the next few years with the help of master lease agreements, or MLAs, that have locked in carrier spending commitments. However, American Tower distinguished itself with significant strength across most of its international markets and in its data centers, which collectively account for more than half of the firm’s revenue. Strength in the markets outside U.S. towers led American Tower to raise its 2023 outlook on the top and bottom lines. We are maintaining our $225 fair value estimate and believe the stock remains undervalued.

We think American Tower's strategy to diversify its tower portfolio globally leaves it best positioned among the three U.S. tower companies, as it is primed to benefit from the continually increasing demand in mobile data worldwide. However, we don't think veering into the data center business, which it did with its acquisition of CoreSite, will pay off, and it distracts from the tower focus we liked for American Tower.

We think American Tower's strategy to diversify its tower portfolio globally leaves it best positioned among the three U.S. tower companies, as it is primed to benefit from the continually increasing demand in mobile data worldwide. However, we don't think veering into the data center business, which it did with its acquisition of CoreSite, will pay off, and it distracts from the tower focus we liked for American Tower.

American Tower’s business was generally strong throughout the globe in the first quarter, but performance in the U.S. was the standout, especially considering U.S. carriers generally pulled back a bit on network spending. In all, American Tower posted its best consolidated organic tower billings growth since 2017 and continued to expand margins. Management’s commentary and guidance indicates the first quarter will likely be the high-water mark for the year in terms of billings growth. Still, we think American Tower is in a great long-term position, and it remains our favorite U.S. tower stock as we raise our fair value estimate to $225 from $220.

American Tower's fourth-quarter results had few surprises, but the 2023 outlook is better than we expected and surpassed those of United States peers. Internationally, many moving parts—notably inflation, market consolidation, and one carrier’s financial difficulties—led to volatility in 2022 results and the 2023 outlook. Long term, we still like American Tower’s international diversification, and current U.S. strength only enhances its standing as our favorite U.S. tower company. We’re raising our fair value estimate to $220 from $210.

We think American Tower's strategy to diversify its tower portfolio globally leaves it best positioned among the three U.S. tower companies, as it is primed to benefit from the continually increasing demand in mobile data worldwide. However, we don't think veering into the data center business, which it did with its acquisition of CoreSite, will pay off, and it distracts from the tower focus we liked for American Tower.

Narrow-moat Cellnex shares are up 8% at the time of the writing given news reported by El Confidencial about a potential takeover offer from American Tower and Brookfield. The two firms have reportedly hired Morgan Stanley to evaluate an offer. We are not surprised by this announcement given several U.S. firms and private equity funds have been laying their hands on European infrastructure in the past two years. American Tower already acquired 30,000 sites from Telefonica in early 2021 in Spain, Germany, and Latin America, in a EUR 7.7 billion deal. Brookfield acquired a stake in Telia’s towers in Sweden, Norway, and Finland during 2022, as well as a 51% stake (together with DigitalBridge) in Deutsche Telekom’s 40,000 towers in Germany and Austria. Other U.S. private equity funds like KKR and Global Infrastructure Partners are currently participating in the acquisition and delisting of Vantage Towers, Vodafone’s tower division, a deal that was announced in November 2022. We maintain our EUR 52 fair value estimate for Cellnex.

Organic leasing growth was strong during American Tower's third quarter, and the firm slightly raised its 2022 outlook for property revenue and adjusted EBITDA despite factoring in a negative impact from currencies and a customer in India that is having financial difficulties. However, the outperformance in the underlying business was not significant enough to make us change our organic leasing expectations for next year or longer term, and the macroeconomic environment contributes to greater uncertainty in 2023 than we think is typical. We are not making material changes to our forecast and are maintaining our $210 fair value estimate.

We think American Tower's strategy to diversify its tower portfolio globally leaves it best positioned among the three U.S. tower companies, as it is primed to benefit from the continually increasing demand in mobile data worldwide. However, we don't think veering into the data center business, which it did with its acquisition of CoreSite, will pay off, and it distracts from the tower focus we liked for American Tower.

We think American Tower's strategy to diversify its tower portfolio globally leaves it best positioned among the three U.S. tower companies, as it is primed to benefit from the continually increasing demand in mobile data worldwide. However, we don't think veering into the data center business, which it did with its acquisition of CoreSite, will pay off, and it distracts from the tower focus we liked for American Tower.

American Tower's U.S. results were mildly disappointing in the second quarter, even considering that the high levels of tower churn resulting from the expiration of Sprint contracts and weakness surrounding master lease agreement fees were well telegraphed. However, business was strong across all international markets, even apart from the boost many of those markets got from inflation-based escalators. Overall, the high exposure to promising international prospects is the reason we prefer American Tower to its peers, and we don’t expect American Tower to lag its peers in the domestic market long term. We are maintaining our $210 fair value estimate, making the stock overvalued at current levels.

We think American Tower's strategy to diversify its tower portfolio globally leaves it best positioned among the three U.S. tower companies, as it is primed to benefit from the continually increasing demand in mobile data worldwide. However, we don't think veering into the data center business, which it did with its acquisition of CoreSite, will pay off, and it distracts from the tower focus we liked for American Tower.

The takeaway from American Tower’s first-quarter results was consistent with what we learned from its earlier-reporting peers. The U.S. market is strong, and inflation is boosting international sales metrics. For American Tower, the nearly 1% increase to its 2022 sales guidance was mostly attributable to higher expectations for pass-through revenue outside the U.S. that results from fuel inflation. Still, we see an international business that is strong and leads us to favor American Tower’s business over its peers, though we still think the stock is expensive relative to our unchanged $210 fair value estimate.