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Summary

  • Company set to benefit from infrastructure improvement spending in U.S. and international markets.
  • Strategic investment and acquisitions to expand international operations offer company robust future growth potential.
  • Analysts project growth rate of 22% for next five years.

American Tower Corporation (NYSE:AMT) reported solid financial performance for 1Q14. In the recent first quarter, ongoing investments to expand LTE networks and site densification by four major U.S. carriers remained the key revenue drivers for AMT. In 1Q14, the company experienced a robust total revenue growth of 22% YoY, driven by 23% and 24% YoY revenue growth in Domestic and International Rental and Management segments, respectively. AMT's international operations are likely to provide growth in the future, as the company is increasing its international operations. Also, the company's efforts to de-lever its balance sheet, following the acquisition of Global Tower, seem to be on track.

As the tower industry continues to face intense competition, AMT remains one of the prominent tower stocks with a broad revenue base. The following pie chart shows revenue contribution by three reporting segments of AMT.

Source: Company's Quarterly Earnings Report

U.S. Operations Remain Strong

The tower industry is benefiting from technology updates, increasing smartphone penetration and data usage, which remains an important growth driver for AMT's U.S. operations. To benefit from the ongoing expansion, the company has been updating and expanding its operational network. Increasing investments in 4G LTE deployment and densification of networks by the four major carriers in the U.S. telecom sector helped AMT experience 23% YoY growth for its U.S. segment in 1Q14. The growing investment trends have turned the U.S. into an attractive revenue generating hub for AMT, which I believe will likely be the case in the near-to-medium term. The following chart shows the revenue growth trend for AMT.

Source: Company's Quarterly Earnings Report

Benefiting From International Growth Opportunities

The company has a diverse geographical revenue base. The company has been aggressively making efforts to expand its international operations; in 2013, AMT acquired approximately 7,800 new sites in international markets. Consistent with its efforts to increase its international operations, the company managed to increase its international segment's revenues by 24% YoY in 1Q14. Along with the expansion of its operations in international markets, AMT is benefiting from infrastructure improvement and expansion spending by its clients, including Telefonica (NYSE:TEF), Airtel and Vodafone (NASDAQ:VOD).

Also, in efforts to lower its costs, improve services and expand its international operations, especially in India, AMT is aiming to bid for India's Voim Network. If the company is successful in biding and completing the deal, it will portend well for its revenue growth and cost structure. The following chart shows the international revenue growth for AMT.

Source: Company's Quarterly Earnings Report

Solid Cash Flows, Secure Dividends and Improving Balance Sheet

A solid cash flow base backs dividends offered by the company. AMT offers a safe and decent dividend yield of 1.4%. The company's cash flow base is further likely to strengthen, as it continues to expand its operations. The company's cash flows came under pressure in 4Q13, due to the acquisition of Global Tower; other than this the cash flow generation remains strong. The following chart shows FCF and dividend comparison for AMT.

Source: Company's Quarterly Earnings Report

The efforts of the company to expand its operations have taken a toll on its balance sheet, resulting in higher leverage. Net leverage for the company increased from 4.1x to 5.9x for AMT in 4Q13, mainly due to debt financing attained to acquire Global Tower. However, the company has been making efforts to de-lever its balance sheet, and has lowered net leverage from 5.9x in 4Q13 to 5.5x in 1Q14. The company has future plans to de-lever its balance sheet, as it has a target to reduce net leverage to 3.5x in the next 1-1.5 years. The following chart shows the net leverage trend for AMT.

Source: Investors Presentation

Conclusion
AMT is well positioned to benefit from infrastructure improvement spending in the U.S. and international markets. The company has also been undertaking strategic investments and acquisitions to expand its international operations, which offer robust future growth potential. Analysts have also projected a robust next five years growth of 22% for AMT, which I believe is consistent with the available growth opportunities. Due to the aforementioned factors, I am bullish on the stock.

Source: American Tower: Planning Ahead And Expanding Internationally Make It An Ideal Buy