American Tower Earnings: Management Proceeds With Caution While Announcing Great Results

American Tower AMT 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.

Organic tenant billings, representing same-tower sales, exceeded 5% growth year over year on every continent, led by Africa (nearly 13%). Growth in the U.S., which makes up about half of the firm’s revenue, was 5.3% despite a 1.2% drag from Sprint churn. Several international markets were buoyed by inflation-based escalators, and the U.S. is still reaping some benefits from heavy 2022 carrier investment, so we think the 6%-7% consolidated same-tower growth from this quarter is a bit higher than a durable long-term run rate. However, colocation and amendment growth, which reflect new investment in towers, remained strong in most markets, and we think that will persist as increasing wireless network use globally will require continued investment. Colocation and amendment growth in Africa, the market we think requires the most investment, was over 8% and has accelerated each quarter this year.