GamePlanAdvisor's  Instablog

The future of communications is here, and American Tower Corp. is welcoming this fact with open arms. As a leader in wireless and broadcast communications infrastructure, American Tower owns and operates approximately 27,000 communications sites in the United States, Mexico, Brazil and India as of December 31, 2009. American Tower’s primary business is leasing antenna space to wireless service providers, radio, and television broadcast companies.

American Tower has many operating advantages that will allow them to continue their consistent incremental growth. Leasing tenants are often locked in to five to ten year contracts that provide lease payment increases of 3-5% per year. Because service interruptions resulting from antenna repositioning are revenue killers in the communications industry,lease renewal rates are extremely high. The costs associated with adding tenants to a site are minimal; and when combined with the low cost of maintaining these communications sites, each additional tenant provides meaningful increases to American Tower’s operating profit.

If there is any doubt that American Tower is positioned for continued success, consider the following. American Tower is the largest Tower company by a large margin. With quarterly year-over-year revenue growth of 11%, operating margins of 40%, and $325 Million in net earnings over the past twelve months, American Tower is leaps and bounds ahead of its competition. According to industry data, in the United States, cellular voice minutes increased to over 1.1 Trillion for the six months ending June 30, 2009, an increase of approximately 3%. The more significant increase is the increase of data services to over 27% of total service revenue.  What then does this mean for American Tower as an investment opportunity?

Industry data indicates that 2009 saw 15 million new wireless subscribers, while landlines were trimmed by 10 million; a trend that very much plays into growth in the tower industry. With American Tower's shares are trading at 63 times earnings expectations, I’d be hard pressed to argue American Tower’s stock is trading cheaply. Shares are near their 52-week high, a high that has been broken and re-broken numerous times over the past few weeks. With this said, I believe American Tower offers investors an opportunity to play the growing  penetration rate of smart phones, not only in the United States, but also in the growing Brazilian and Indian middle-class markets.

As people trade landlines and desktop computers for their mobile counterparts, American Tower and its investors will find themselves in a position to soak up the profits resulting additional tower leasing, higher margins, and low maintenance costs. American Tower shares appear poised for a pullback towards their 50-day moving average. This pullback should be seen as an opportunity to take a position in this growth industry with emerging market exposure.