Cell-tower giant American Tower (NYSE:AMT) reported earnings earlier today (see transcript here). ATM's Q4 2009 EPS of 16 cents missed the street's expectation by 2 cents, yet their quarterly revenue came in higher than expected.
Their gross margin, by my estimate (using revenue minus site rental expenses, etc.), increased 40 basis points in 2009, from 75.5% to 75.9%. SG&A costs dropped from 11.6% of revenue to 11.3%, accounting for nearly a point of extra margin. AMT stock, of course, is way out ahead of itself, up 57% in 12 months.
Click to enlargeThe company does not currently pay a dividend, preferring instead to continue investing heavily in its network of towers. I know of very few other business models as well positioned over the coming years as American Tower's - they can leverage each tower with more and more tenants (to a degree of course), as smartphone explosion creates a simply mind-boggling need for more bandwidth.
American Tower has a great operating model, but it's only a decent stock at the right price. AMT is one of those stories that is loved by the PBA community (PBA being "Price-Blind-Argument," which I outlined in my 2010 outlook), but they neglect to mention at what price it makes sense.
I don't personally see a reason to own the shares unless the company changes its stance on paying a dividend, which is not currently in the cards. However, they'll likely become a dividend-paying REIT in 2012/13.
By my estimates, they could pay out 40% of 2010's after-CAPEX Free Cash Flow, for a dividend of 64 cents per share, comprising a dividend yield of 1.5%. Maybe that's what the stock is pricing in, or maybe it's pricing in a higher dividend yield. We'll see.
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Disclosure: No position