American Tower Corporation (NYSE:AMT) is a leading global owner of telecommunications real estate. It has a portfolio of nearly 28,000 towers in the U.S. and over 39,000 towers in 12 international markets as of year-end 2013. It is well positioned to benefit from the secular trend of increased adoption of smartphone/tablets which is forcing carriers to roll out 3G/4G networks, increasing the demand for tower space.
American Tower entered the Indian market in 2007 and appointed Mr. Amit Sharma as the company's Executive Vice President, Asia and the President of its Asian subsidiary. American Tower acquired 1,700 towers from Xcel Telecom in 2009. In 2010, American Tower bought 4,450 towers from the Essar group. The company currently has more than 12,000 towers in India and is planning in the near future to provide customized collocation solutions through Distributed Antenna Systems (DAS), which support seamless in-building and outdoor wireless coverage.
American Tower Corp emerged as the front-runner for a majority stake in Viom Networks, an independent tower company with more than 41,000 towers. Its expansion into the Indian market may more than double the number of its international towers. American Tower categorizes India as an emerging market, which is voice-centric. Smartphone adoption in the Indian market increased by 84% in Q2 2014 year over year, the fastest growth in Asia Pacific according to an IDC research report. The potential for future growth in the smartphone market remains quite high as 71% of the market continues to be on feature phones. The price wars in the sub $200 category can only help to accelerate this trend.
Reliance Jio Infocomm, Conglomerate Reliance Industries' telecommunications unit, which holds nationwide 4G permits, plans to roll out nationwide 4G network in 2015. It has agreed to lease mobile phone masts from infrastructure provider American Tower Corporation's local arm. It will intensify competition and other carriers like Vodafone (NASDAQ:VOD), Airtel etc. will also roll out 4G networks to maintain their subscriber base.
The Indian Govt. approved REITs in the 2014-2015 union budgets to encourage investments in the real estate sector. This will help the company structure its India business in a more tax-efficient way. The Govt. has recently announced a goal that every citizen should have a smartphone by 2019. Even though Govt.'s target is ambitious, it does indicate the policy direction.
American Tower Corp. is among the few companies who expect strong top-line growth, unlike most of the companies who are struggling with their top-line growth. This is reflected in the management's aspirational goal of doubling (Adjusted Fund from Operation) AFFO in the 2012-2017 period.
The market does seem to realize the future potential of American Tower Corp. 94.6% of the shares of the company is held by institutions, a strong vote of confidence in the professional management of the company. The company declared excellent results for the second quarter of 2014. AFFO increased by 29% to $1.19 per share in the Q2 2014 period.
Jim Taiclet, American Tower's Chief Executive Officer stated,
Our second-quarter 2014 results exceeded our expectations across all key metrics due to strong global demand for our tower space. 4G coverage and densification initiatives by our major tenants drove Organic Core Growth of over 11% in the U.S., and significant investment levels by tenants internationally drove Organic Core Growth of nearly 18%. These strong Organic Core Growth trends, in combination with contributions from new assets, led to record AFFO per share growth in the quarter of over 29%.
We expect favorable leasing demand for communications real estate to continue and accordingly, we are raising our full-year outlook for total rental and management revenue, Adjusted EBITDA and AFFO by $45 million, $55 million and $30 million, respectively.
The company has a market cap. of $39.14B. The stock is quoting at a one-year Forward P/E of 34.55 and the current dividend yield is 1.5%. Given the attractive growth potentials for AMT, analysts have anticipated a robust next 5-year growth rate of 21.90% per annum. I consider the stock a Buy which has a potential to outperform the market.
American Tower Corp. does face exchange rate risk due to the international nature of its businesses.
Its business could also be affected due to the poor financial health of the telecom carriers.
The shares of the company quote at a high earnings multiple, which is typical of companies in high growth sectors. Multiple contraction due to any reason like market correction or the failure of the company to perform on expected lines could be a risk.
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