American Tower Is A Buffett-Style Wonderful Company At A Fair Price

Summary

• American Tower is the most geographically diversified tower REIT with 20% exposure to India and Brazil, two of the fastest-growing wireless data markets in the world.
• Thanks to 5G, and American Tower is a world leader in providing the infrastructure.
• American Tower is a classic Buffett-style "wonderful company at a fair price".
• Looking for a helping hand in the market? Members of iREIT on Alpha get exclusive ideas and guidance to navigate any climate. Learn More »

Gerardo Huitrón/iStock via Getty Images

This article was co-produced with Dividend Sensei.

The 2022 correction so far has been relatively mild by historical standards.

But, of course, it's always a market of stocks not a stock market.

YCharts

Bank of America describes the current correction as "carnage" for many growth stocks, especially tech.

• nearly 50% of the Nasdaq is down 50% or more from record highs

That kind of crash hasn't yet happened to American Tower (NYSE:AMT), a favorite "technology" REIT, but it's currently in a 23% bear market.

• the 3rd worst in its history

So let me explain the three reasons why iREIT and DK are bullish on AMT today and recently added it to our portfolios or correction watchlist.

In fact, as you'll now see, American Tower is a classic Buffett-style "wonderful company at a fair price".

Reason One: World-Class Quality You Can Trust

The Dividend King's overall quality scores are based on a 237-point model that includes:

• Dividend safety

• Balance sheet strength

• Credit ratings

• Credit default swap medium-term bankruptcy risk data

• Short and long-term bankruptcy risk

• Accounting and corporate fraud risk

• Profitability and business model

• Growth consensus estimates

• Historical earnings growth rates

• Historical cash flow growth rates

• Historical dividend growth rates

• Cost of capital

• Long-term risk-management scores from MSCI, Morningstar, FactSet, S&P, Reuters/Refinitiv and Just Capital

• Management quality

• Dividend friendly corporate culture/income dependability

• Long-term total returns (a Ben Graham sign of quality)

• Analyst consensus long-term return potential

It actually includes over 1,000 metrics if you count everything factored in by 12 rating agencies we use to assess fundamental risk.

• Credit and risk management ratings make up 41% of the DK safety and quality model

• Dividend/balance sheet/risk ratings make up 82% of the DK safety and quality model

How do we know that our safety and quality model works well?

During the two worst recessions in 75 years, our safety model predicted 87% of blue-chip dividend cuts during the ultimate baptism by fire for any dividend safety model.

How does AMT score on one of the world's most comprehensive and accurate safety and quality models?

AMT Dividend Safety

Rating	Dividend Kings Safety Score (147 Point Safety Model)	Approximate Dividend Cut Risk (Average Recession)	Approximate Dividend Cut Risk In Pandemic Level Recession
1 - unsafe	0% to 20%	over 4%	16+%
2- below average	21% to 40%	over 2%	8% to 16%
3 - average	41% to 60%	2%	4% to 8%
4 - safe	61% to 80%	1%	2% to 4%
5- very safe	81% to 100%	0.5%	1% to 2%
AMT	84%	0.5%	1.9%
Risk Rating	Low-Risk (75th industry percentile consensus)	BBB- stable outlook credit rating 11% 30-year bankruptcy risk	10% OR LESS Max Risk Cap Recommendation

Click to enlarge

Long-Term Dependability

Company	DK Long-Term Dependability Score	Interpretation	Points
Non-Dependable Companies	21% or below	Poor Dependability	1
Low Dependability Companies	22% to 60%	Below-Average Dependability	2
S&P 500/Industry Average	61% (58% to 70% range)	Average Dependability	3
Above-Average	71% to 80%	Very Dependable	4
Very Good	81% or higher	Exceptional Dependability	5
AMT	80%	Very Dependable	4

Click to enlarge

Overall Quality

AMT	Final Score	Rating
Safety	84%	5/5 very safe
Business Model	80%	2/3 narrow moat
Dependability	80%	4/5 very dependable
Total	82%	11/13 SWAN
Risk Rating	3/3 Low Risk
10% OR LESS Max Risk Cap Rec	15% Margin of Safety For A Potentially Good Buy

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AMT: The 184th Highest Quality Master List Company (Out of 509) = 64th Percentile

The DK 500 Master List includes the world's highest quality companies including:

• All dividend champions

• All dividend aristocrats

• All dividend kings

• All global aristocrats (such as BTI, ENB, and NVS)

• All 13/13 Ultra Swans (as close to perfect quality as exists on Wall Street)

• 47 of the world's best growth stocks (on its way to 50)

AMT's 82% quality score means its similar in quality to such blue-chips as:

• UnitedHealth Group (UNH)

• Royal Bank of Canada (RY)

• Public Storage (PSA)

• General Dynamics (GD) - dividend aristocrat

• Consolidated Edison (ED) - dividend aristocrat

• Archer-Daniels-Midland (ADM) - dividend aristocrat

• Federal Realty Investment Trust (FRT) - dividend king

Even among the most elite companies on earth, AMT is of higher quality than 64% of them.

Why?

AMT was founded in 1995 in Boston and is the best-positioned tower REIT on Wall Street.

"We think American Tower's strategy to diversify its tower portfolio globally leaves it best positioned among the three U.S. tower companies, as it is primed to benefit from the continually increasing demand in mobile data worldwide." - Morningstar

AMT Investor Presentation

AMT is a global leader in telecom towers, including the world's fastest-growing wireless data markets such as India and Nigeria.

It's my single favorite way to ride one of the biggest secular megatrends in human history.

In the US alone, from 2007 through 2021, mobile data usage grew 57% annually or 551X.

Investment Thesis Summary

"The tower business is very attractive. Wireless carriers enter long-term leases that include rent escalators (annual increases of about 3% in the United States and generally tied to inflation internationally), which gives the firm a highly visible and stable revenue stream, and towers have significant operating leverage...

...Long term, we think prospects are bright in American Tower's international markets, which are dominated by India, Brazil, Africa, and Mexico.

Many international markets are a decade behind the U.S. and are now building their 4G networks. Indian data usage has been growing 100% per year, and carriers have been substantially increasing spending to improve networks. Latin American countries now have over 200 million people in the middle class, making them potential smartphone users." - Morningstar

Despite its name, AMT is the most geographically diversified tower REIT with 20% exposure to India and Brazil, two of the fastest-growing wireless data markets in the world.

In fact, 81% of its towers at the end of 2021 were located overseas.

By 2025, analysts expect AMT to have 235,000 global telecom towers.

Telecom towers have exceptionally attractive leverage opportunities.

While returns on capital are just 3% for a new US tower with a single tenant, once there are three (all three large carriers), those returns jump by as much as 700% to 24% and generate 83% gross margins.

AMT enjoys a 1% to 2% annual churn rate because it's hard for rivals to undercut it on price.

Also, moving to different towers means risking network disruption which carriers are loath to do.

In the US alone, thanks to connected devices, the so-called "internet of things" or IOT mobile connections are expected to grow 8% annually through 2026 to 858 million.

Mobile data generated per device is expected to grow by 26% annually through 2026.

US data growth is expected to be 28% annually through 2026 thanks to things like streaming a 30-minute TV show requiring 11,000X as much data as sending an email.

Globally, data usage is also growing rapidly, including:

• Europe 26% CAGR

• India 19%

• Brazil 30%

• Mexico 30%

• South Africa 30%

Improved capacity and technology have lowered the cost of transporting data at exponential rates and are expected to continue to lower them over time.

Once 5G is fully rolled out, it will revolutionize the world.

• Up to 100X faster downloads

• 300X as many connections per transmitter

• 3X the energy efficiency

Driverless cars?

Advanced AI running automated factories?

Cloud computing connecting 350 billion online devices?

All of this is possible and expected, thanks to 5G, and AMT is a world leader in providing the infrastructure to make it possible.

On December 28th, AMT completed the $10.1 billion acquisition of CoreSite, gaining 25 global data centers.

"In its own right, we had similarly rated CoreSite as having a narrow moat, and we think its property portfolio had a strong competitive advantage. The network density of its data centers underpinned a network effect, and the firm also benefitted from the switching costs inherent in data centers." - Morningstar

AMT expects COR to be a key part of its expanding data center strategy that could give it an entirely new world to conquer and extend its rapid growth runway for years or even decades to come.

"Technology is evolving and advancing right in line with our expectations. And the long-term secular trends that have driven and continue Steward to drive our business remain strong...Taken together, this is a backdrop that we expect will lead to sustained attractive growth for us over the long term...

Industry experts anticipate that these elevated levels of capital spending will be sustained for a number of years driven by a mobile data usage growth CAGR of more than 25% over the next five years. Amazingly, this follows a more than 25% CAGR for the last five years, and cumulative growth of approximately 7,500% over the last decade.

This compelling demand backdrop, coupled with the long-term non-cancelable leases that comprise our more than $60 billion global contractual backlog gives us confidence in our ability to drive organic tenant billings growth in the mid-single-digit range on average in the U.S. through 2027, and to drive higher growth rates abroad in that same period." - CEO, Q3 conference call

In the US, management and analysts both expect about 4% to 6% growth in organic billing while globally insatiable demand for data capacity keeps AMT's contracted backlog, already $60 billion strong, growing at a rapid pace.

Our first priority remains our dividend. For the full year, we continue to expect to distribute $2.3 billion subject to board approval, which implies a roughly 15% year-over-year per-share growth rate...

Consistent with our prior comments, we anticipate growing our dividend by at least 10% annually in the coming years." - CEO, Q3 conference call

Morningstar's worries about a dividend growing at a token rate aren't shared by management which hiked the dividend 15% in 2021 and expects double-digit growth for the foreseeable future.

• Analysts expect 17% CAGR dividend growth through 2025

AMT Credit Ratings

Rating Agency	Credit Rating	30-Year Default/Bankruptcy Risk	Chance of Losing 100% Of Your Investment 1 In
S&P	BBB- stable outlook	11.00%	9.1
Fitch	BBB+ negative watch outlook	7.50%	13.3
Moody's	Baa3 (BBB- Equivalent) stable	11.00%	9.1
Consensus	BBB- stable outlook	9.83%	10.2

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(Sources: S&P, Fitch, Moody's)

Fitch Places American Tower's 'BBB+' IDR and Unsecured Debt on Rating Watch Negative...

The Rating Watch Negative reflects the potential effect on AMT's credit profile from the definitive agreement to acquire CoreSite Realty Corporation.

Total consideration for the acquisition is $10.1 billion, including the assumption and/or repayment of CoreSite's existing debt...

In addition to being consistent with its investment-grade credit ratings, the company has disclosed near term net leverage will rise above 5x, with a path toward de-levering back to the 3x-5x range over time.

U.S. Consolidation Risk Manageable: Fitch believes the merger of T-Mobile US, Inc. and Sprint Corporation will not have a material effect on AMT's operations.

Risk is mitigated by a new agreement with T-Mobile announced on Sept. 15, 2020, providing for nearly a 15- year term. Material terms of the agreement were not disclosed, but it provides much greater visibility into AMT's revenue and provides synergies for T-Mobile. The agreement added $17 billion on noncancelable revenues to AMT's aggregate backlog, which totaled $61 billion at the end of 3Q'21.

As an outcome of the Sprint/T-Mobile regulatory approval process, DISH Network Corporation acquired certain wireless assets from the merged company in July 2020 leading to the formation of a fourth nationwide operator.

In March 2021, AMT announced a long-term master lease agreement with DISH for space on up to 20,000 towers. Source: Fitch

Factors that could, individually or collectively, lead to negative rating action/downgrade:

- AMT's inability to reach Fitch's negative sensitivity threshold of net leverage of 5.5x by the end of 2024, or if a subsequent significant transaction delay anticipated de-levering could lead to a downgrade;

- Organic revenue growth slows to a nominal level or flattens completely, combined with margin pressure;

- If financial/capital allocations policies result in expectations for net leverage (net debt/recurring operating EBITDA) sustained above 5.5x. - Fitch

Rating agencies like to see 6.0 or less debt/EBITDA for investment-grade REITs and 5.5 or less for BBB+ rated REITs.

AMT's recent two major acquisitions, totaling $19.5 billion puts its BBB+ rating from Fitch at risk, but not its BBB- rating from S&P and Moody's.

AMT Leverage Consensus Forecast

Year	Debt/EBITDA	Net Debt/EBITDA (6.0 Or Less Safe According To Credit Rating Agencies)	Interest Coverage (2+ Safe)
2021	5.66	5.32	3.64
2022	5.79	5.83	3.93
2023	5.53	5.33	4.06
2024	5.18	5.12	4.44
2025	4.47	4.55	4.75
2026	4.27	4.13	5.17
2027	NA	NA	5.45
Annualized Change	-5.48%	-4.96%	6.98%

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(Source: FactSet Research Terminal)

AMT's strong cash flow growth is expected to rapidly de-leverage it to very safe levels that should help it maintain its investment-grade credit ratings.

AMT Balance Sheet Consensus Forecast

Year	Total Debt (Millions)	Cash	Net Debt (Millions)	Interest Cost (Millions)	EBITDA (Millions)	Operating Income (Millions)	Average Interest Rate
2020	$29,163	$1,746	$27,426	$794	$5,156	$2,888	2.72%
2021	$34,580	$2,500	$34,845	$868	$5,975	$3,409	2.51%
2022	$35,917	$2,330	$34,584	$925	$6,491	$3,755	2.58%
2023	$35,347	$2,156	$34,916	$924	$6,819	$4,101	2.61%
2024	$31,891	$1,184	$32,484	$922	$7,140	$4,382	2.89%
2025	$31,896	$820	$30,834	$894	$7,474	$4,618	2.80%
2026	NA	$291	NA	$888	$7,816	$4,843	NA
Annualized Growth	1.81%	-25.82%	2.37%	1.88%	7.18%	9.00%	0.58%

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(Source: FactSet Research Terminal)

REITs are a naturally high leverage sector with very stable cash flows that allows them to hold little cash and service much more debt than is safe for most sectors.

AMT's cash flows are expected to grow much faster than its net debt which is why it's rapidly deleveraging to a target range of 3X to 5X debt/EBITDA.

Average interest costs are expected to rise to 2.8%, or 0.6% adjusted for inflation, in the coming years, despite rising global interest rates.

• 11% cash returns on invested capital mean AMT's cost of capital will remain very low and allow it to maintain very profitable investment spreads

AMT Bond Profile

• $12.3 billion in liquidity

• Well-staggered debt maturities (little problem refinancing maturing bonds)

• 92% unsecured bonds (very high financial flexibility)

• Bond investors so confident in AMT's long-term prospects they are willing to lend to it for 29 years at 3.95

• The average borrowing cost is 2.09%

• -0.2% after inflation vs 11.0% cash returns on invested capital

AMT Credit Default Swaps: The Bond Market's Real-Time Fundamental Risk Assessment

Credit default swaps are insurance policies bond investors take out against potential defaults.

• A real-time fundamental risk-assessment

• AMT's CDS imply a BBB+ credit rating

• Fundamental risk has been falling over the last three months

• At the same time as the price has been falling due to the growth stock correction

• Bond investors, rating agencies, management, and analysts agree that AMT's thesis remains intact

AMT Profitability: Wall Street's Favorite Quality Proxy

Historically, AMT's profitability is in the top 20% of REITs.

In the last year, profitability has been hurt by large acquisition-related expenses (such as the added interest costs of $19.5 billion in debt).

AMT Trailing 12-Month Profitability Vs Peers

Metric	Industry Percentile	Major REITs More Profitable Than AMT (Out Of 747)
Operating Margin	35.87	479
Net Margin	39.87	449
Return On Equity	98.92	8
Return On Assets	71.75	211
Average	61.60	287

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(Source: GuruFocus Premium)

AMT's profitability was still in the top 38% of REITs despite the short-term increase in costs associated with two of its biggest acquisitions in history.

AMT's profitability has been steadily rising for the past decade confirming a narrow and stable moat.

AMT Profit Margin Consensus Forecast

Year	AFFO Margin	EBITDA Margin	EBIT (Operating) Margin	Net Margin
2020	48.6%	64.8%	36.3%	21.3%
2021	46.8%	64.1%	36.6%	28.3%
2022	45.7%	63.0%	36.4%	24.5%
2023	47.8%	63.4%	38.2%	26.1%
2024	49.8%	63.8%	39.2%	26.8%
2025	50.9%	63.3%	39.1%	27.8%
2026	53.5%	64.2%	39.8%	29.1%
Annualized Growth	1.64%	-0.15%	1.54%	5.39%

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(Source: FactSet Research Terminal)

AMT's margins are expected to remain stable or increase at modest rates in the future.

54% AFFO margins are among the best in REIT-dom and 48% FCF margins in 2024 would put AMT among the top 1% of global companies in terms of free cash flow generation.

AMT Dividend Growth Consensus Forecast

Year	Dividend Consensus	AFFO/Share Consensus	Payout Ratio	Retained (Post-Dividend) Cash Flow	Buyback Potential	Debt Repayment Potential
2022	$5.97	$10.35	57.7%	$1,993	1.87%	5.8%
2023	$6.81	$11.29	60.3%	$2,038	1.92%	5.9%
2024	$8.05	$12.24	65.8%	$1,906	1.79%	5.3%
2025	$9.46	$13.21	71.6%	$1,706	1.61%	4.8%
Total 2022 Through 2025	$30.29	$47.09	64.3%	$7,644.00	7.19%	22.11%
Annualized Rate	16.58%	8.47%	7.48%	-5.04%	-5.04%	-5.74%

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(Source: FactSet Research Terminal)

• Rating agencies consider 90% to be a safe payout ratio for this industry

• AMT's payout ratio is expected to climb steadily over time but average 64% through 2025

• Allowing it to retain $7.6 billion in post-dividend cash flow in the next three years

• Enough to pay off up to 22% of current debt

If you love safe and rapidly growing dividends, up to 6% hikes per quarter, AMT is the REIT for you.

Reason Two: A Strong Growth Runway For Decades To Come

We've already seen how AMT has two of the largest secular mega-trends in history at its back, mobile data and data centers.

What kind of growth do analysts expect this to drive?

AMT Medium-Term Growth Consensus Forecast

Year	Sales	AFFO	EBITDA	EBIT (Operating Income)	Net Income
2020	$7,954	$3,863	$5,156	$2,888	$1,691
2021	$9,326	$4,363	$5,975	$3,409	$2,635
2022	$10,305	$4,709	$6,491	$3,755	$2,521
2023	$10,749	$5,137	$6,819	$4,101	$2,810
2024	$11,186	$5,569	$7,140	$4,382	$3,002
2025	$11,799	$6,011	$7,474	$4,618	$3,276
2026	$12,168	$6,516	$7,816	$4,843	$3,544
Annualized Growth	7.34%	9.10%	7.18%	9.00%	13.12%

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(Source: FactSet Research Terminal)

This is one of the world's fastest-growing REITs.

Metric	2021 Growth Consensus	2022 Growth Consensus	2023 Growth Consensus	2024 Growth Consensus	2025 Growth Consensus	2026 Growth Consensus
Sales	13%	12%	3%	4%	5%	3%
Dividend	15%	15%	14%	18%	18%	NA
FFO	13%	8%	9%	8%	8%	8%
AFFO	14%	8%	9%	8%	8%	8%
EBITDA	17%	10%	5%	NA	NA	NA
EBIT (operating income)	5%	11%	10%	NA	NA	NA

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(Source: FAST Graphs, FactSet Research Terminal)

And analysts expect its dividend to grow at about 16% annually in the coming years.

• AMT tends to raise its dividend 2% to 3% in recent years

• The most recent hike was 6%

OK, so that's impressive medium-term growth but what about the long-term outlook?

AMT Long-Term Growth Outlook

• FactSet's consensus for REIT growth is 6.5% CAGR in the future

• AMT is expected to grow about 2X as fast as the sector overall, 11.6% CAGR

• 11.6% to 13.5% CAGR growth consensus range

• I personally expect 8% growth from 2023 through 2026 to continue

• But AMT's growth catalysts and potential for large M&A could easily surprise to the upside

Smoothing for outliers, analyst margins of error are 5% to the downside and 10% to the upside.

• 11% to 15% CAGR historical margin of error growth consensus range

• 8% to 15% when adjusted for growth expectations through 2026

• 3% to 21% CAGR is how fast AMT has grown over the past 20 years

• With most years being double-digits

Analysts expect AMT to keep growing at the growth rate of the last 10 years, potentially due to it entering the data center market.

We expect growth of 8%, which would be similar to the last three years.

Reason Three: A Reasonable Valuation For One Of The Best REITs On Earth

Outside of bear markets and bubbles, tens of millions of investors have paid 21.5X to 23X FFO for AMT for 20 years.

• 91% statistical probability that AMT's intrinsic value is around this range

Metric	Historical Fair Value Multiples (15-year)	2021	2022	2023	2024	12-Month Forward Fair Value
5-Year Average Yield	1.92%	$270.83	$289.58	$289.58	$419.27
FFO	22.13	$213.26	$229.05	$249.85	$270.87
Average		$238.62	$255.78	$268.25	$329.12	$257.46
Current Price	$233.39
Discount To Fair Value		2.19%	8.75%	13.00%	29.09%	9.35%
Upside To Fair Value (NOT Including Dividends)		2.24%	9.59%	14.94%	41.02%	10.31% (13% including dividend)
2022 FFO	2023 FFO	2022 Weighted FFO	2023 Weighted FFO	12-Month Forward FFO	12-Month Average Fair Value Forward FFO	Current Forward FFO
$10.35	$11.29	$8.96	$1.52	$10.48	24.6	22.3

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Today, AMT is a wonderful company at a fair price, trading at a modest discount to historical market-determined fair value. If AMT returns to fair value within a year, then investors will make 13% returns.

Analyst Median 12-Month Price Target	Morningstar Fair Value Estimate
$301.84 (26.7 FFO)	$188.00 (18 FFO)
Discount To Price Target (Not A Fair Value Estimate)	Discount To Fair Value
22.68%	-24.14%
Upside To Price Target (Not Including Dividend)	Upside To Fair Value (Not Including Dividend)
29.33%	-19.45%
12-Month Median Total Return Price (Including Dividend)	Fair Value + 12-Month Dividend
$306.12	$193.56
Discount To Total Price Target (Not A Fair Value Estimate)	Discount To Fair Value + 12-Month Dividend
23.76%	-20.58%
Upside To Price Target (Including Dividend)	Upside To Fair Value + Dividend
31.16%	-17.07%

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Morningstar's 18 FFO fair value estimate is 91% statistically likely to be too conservative.

• Realty Income (O) historically grows at 1/3 the rate of AMT and trades at 19X

• Around 23X FFO is the market's fair value estimate

Analysts expect AMT to return to recent high valuations of about 27X FFO within the next year, generating 31% total returns.

Of course, we don't actually care about 12-month return forecasts.

Time Frame (Years)	Total Returns Explained By Fundamentals/Valuations
1 Day	0.01%
1 month	0.25%
3 month	0.75%
6 months	1.5%
1	3%
2	6%
3	23%
4	31%
5	39%
6	47%
7	55%
8	62%
9	70%
10	78%
11+	90% to 97%

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(Sources: DK S&P 500 Valuation And Total Return Potential Tool, JPMorgan, Bank of America, Princeton, RIA)

• Over 12 months, luck is 33X as powerful as fundamentals

• Over 11+ years, fundamentals are 11X as powerful as luck

• Over the very long term, fundamentals are 33X as powerful as luck

Rating	Margin Of Safety For Low-Risk 11/13 SWAN Quality Companies	2022 Price	2023 Price	12-Month Forward Fair Value
Potentially Reasonable Buy	0%	$255.78	$268.25	$257.46
Potentially Good Buy	15%	$217.41	$228.01	$218.84
Potentially Strong Buy	25%	$191.84	$201.19	$193.09
Potentially Very Strong Buy	35%	$141.32	$174.36	$167.35
Potentially Ultra-Value Buy	45%	$140.68	$147.54	$141.60
Currently	$233.39	8.75%	13.00%	9.35%
Upside To Fair Value (Not Including Dividends)		9.59%	14.94%	10.31%

Click to enlarge

For anyone comfortable with its risk profile, AMT is a potentially reasonable buy and here's why.

Consensus Total Return Potential That's Far Better Than The Market's

For context, here's the return potential of the 18% overvalued S&P 500.

Year	EPS Consensus	YOY Growth	Forward PE	Blended PE	Overvaluation (Forward PE)	Overvaluation (Blended PE)
2021	$205.86	50.05%	23.3	23.9	35%	36%
2022	$222.99	8.32%	20.1	21.7	16%	23%
2023	$245.97	10.31%	18.2	19.1	6%	9%
2024	$274.70	11.68%	16.3	17.2	-5%	-2%
12-Month forward EPS	12-Month Forward PE	Historical Overvaluation	PEG	25-Year Average PEG	S&P 500 Dividend Yield	25-Year Average Dividend Yield
$225.15	19.858	17.99%	2.34	3.62	1.42%	2.01%

Click to enlarge

(Source: DK S&P 500 Valuation And Total Return Tool) updated weekly

Stocks have already priced in all of the 100% EPS growth from 2020 through 2024 and are trading at 19.6X forward earnings.

• 16.84 is the 25-year average

• 15.0% correction needed to get back to historical market fair value

S&P 500 2023 Consensus Total Return Potential

FAST Graphs, FactSet Research

Analysts expect the S&P 500 to deliver potentially -9% total returns over the next two years.

Year	Upside Potential By End of That Year	Consensus CAGR Return Potential By End of That Year	Probability-Weighted Return (Annualized)	Inflation And Risk-Adjusted Expected Returns
2027	35.26%	6.23%	4.67%	1.83%

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(Source: DK S&P 500 Valuation And Total Return Tool) updated weekly

Adjusted for inflation, the risk-expected returns of the S&P 500 are about 2% for the next five years.

• S&P's historical inflation-adjusted returns are 6% to 7% CAGR

S&P Earnings Yield	10-Year US Treasury Yield	Earning Yield Risk-Premium
5.04%	2.04%	3.00%
Theoretical Interest Rate Justified Market Fair Value Forward PE	Current PE	Theoretically Interest Rate Justified Market Decline
17.43	19.86	12.21%

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(Source: DK S&P 500 Valuation And Total Return Tool) updated weekly

Even adjusting for low (and rising) interest rates, stocks still require a 12% correction before they become theoretically fairly valued.

But here's what investors buying AMT today can reasonably expect (8% to 15% growth and 21.5 to 23 FFO)

• 5-year consensus return potential range: 7% to 11% CAGR

AMT 2023 Consensus Total Return Potential

FAST Graphs, FactSet Research

AMT could deliver 7% annualized total returns in the coming two years, far better than the S&P's -5%.

AMT 2027 Consensus Total Return Potential

FAST Graphs, FactSet Research

If AMT grows as expected and returns to historical mid-range fair value:

• Then 78% total returns or 10% CAGR

• About 2X more than the S&P 500 consensus

Risk Profile: Why American Tower Isn't Right For Everyone

There are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.

AMT's Risk Profile Summary

"We see American Tower as a high uncertainty stock. We are confident towers will be integral to telecommunications throughout our forecast, and American Tower will thrive, but the stock's value is dependent on carriers needing to continue investing heavily in their macro towers. If there is ever an alternative to macro towers or the ability for carriers to rely on them less than they have historically, American Tower's growth will suffer.

Greater use of small cells by carriers, which will be more prevalent with 5G, could affect tower demand, as could other technological advances that require less tower density for carriers. American Tower's doesn't participate in the U.S. outdoor small cell market, so any alternative to towers would be detrimental. However, we believe towers will continue to be carriers' most cost-effective option, especially in the ex-urban areas where American Tower more commonly resides.

We think American Tower's recent acquisition of CoreSite also increases risk and uncertainty, as it paid a big premium for a business where we see few synergies. We think CoreSite is an excellent business with valuable and unique properties, but we question whether investors will see adequate returns for the price American Tower paid. - Morningstar (emphasis added)

AMT's Risk Profile Includes:

• Regulatory risk (mostly in emerging markets like India)

• Technology disruption risk (from small cells decreasing demand growth for towers)

• M&A execution risk (large acquisitions can be hard to pull off, and there is a risk of overpaying such as for CoreSite)

• Labor retention risk (tightest job market in over 50 years and finance is a high paying industry)

• Currency risk: growth overseas is faster than in the US and this will increase in the future

• Data security risk: hacking and ransomware

• Land releasing risk: a potential threat to margins

Morningstar considers the CoreSite acquisition a potential mistake, with AMT getting outside its circle of competence and overpaying for that fast-growing data center REIT.

However, analysts are far more optimistic considering a potential big long-term growth booster and not expecting dividend growth to slow at all.

AMT's most recent dividend hike of 6% for the quarter indicates that management agrees with analysts.

"At the end of 2018, American Tower owned only about 10% of the land under its towers. Its leases typically have initial terms of five to 10 years and give it the option for at least one renewal period.

Under existing leases, American Tower controls the land under more than 46% of its towers until 2028 or later, so we don't think it is a significant near-term concern.

However, as leases need to be renegotiated, we have less confidence that the tower companies have leverage over landowners or advantages versus other potential land tenants." - Morningstar

How do we quantify, monitor, and track such a complex risk profile? By doing what big institutions do.

Material Financial ESG Risk Analysis: How Large Institutions Measure Total Risk

• 4 Things You Need To Know To Profit From ESG Investing

• What Investors Need To Know About Company Long-Term Risk Management (Video)

Here is a special report that outlines the most important aspects of understanding long-term ESG financial risks for your investments.

• ESG is NOT "political or personal ethics based investing"

• It's total long-term risk management analysis

ESG is just normal risk by another name." Simon MacMahon, Head of ESG and Corporate Governance Research, Sustainalytics" - Morningstar

ESG factors are taken into consideration, alongside all other credit factors, when we consider they are relevant to and have or may have a material influence on creditworthiness." - S&P

ESG is a measure of risk, not of ethics, political correctness, or personal opinion.

S&P, Fitch, Moody's, DBRS (Canadian rating agency), AM Best (insurance rating agency), R&I Credit Rating (Japanese rating agency), and the Japan Credit Rating Agency have been using ESG models in their credit ratings for decades.

• Credit and risk management ratings make up 41% of the DK safety and quality model

• Dividend/balance sheet/risk ratings make up 82% of the DK safety and quality model

Dividend Aristocrats: 67th Industry Percentile On Risk Management (Above-Average, Medium Risk)

AMT Long-Term Risk Management Consensus

Rating Agency	Industry Percentile	Rating Agency Classification
MSCI 37 Metric Model	92.0%	AA Industry Leader
Morningstar/Sustainalytics 20 Metric Model	93.7%	10.9/100 low-Risk
Reuters'/Refinitiv 500+ Metric Model	75.3%	Good
S&P 1,000+ Metric Model	33.0%	Poor (Stable Trend)
Just Capital 19 Metric Model	80.95%	Very Good
Consensus	75.0%	Good
FactSet Qualitative Assessment	Average	Positive Trend

Click to enlarge

(Sources: MSCI, Morningstar, Reuters, S&P, FactSet Research)

AMT's Long-Term Risk Management Is The 122nd Best In The Master List (76th Percentile)

AMT's risk-management consensus is in the top 24% of the world's highest quality companies and similar to that of such other companies as

• V.F. Corp. (VFC) - dividend king

• Sysco (SYY) - dividend king

• Toronto-Dominion Bank (TD)

• Philip Morris International (PM) - dividend king

• Enterprise Products Partners (uses K-1 tax form) (EPD)

• Air Products and Chemicals (APD) - dividend aristocrat

• Coca-Cola (KO) - dividend king

• T. Rowe Price (TROW) - dividend aristocrats

The bottom line is that all companies have risks, but AMT is good at managing theirs.

How We Monitor AMT's Risk Profile

• 23 analysts

• 3 credit rating agencies

• 8 total risk rating agencies

• 31 experts who collectively know this business better than anyone other than management

• And the bond market for real-time fundamental risk analysis

"When the facts change, I change my mind. What do you do sir?" - John Maynard Keynes

There are no sacred cows at iREIT or Dividend Kings. Wherever the fundamentals lead, we always follow. That's the essence of disciplined financial science, the math retiring rich and staying rich in retirement.

Bottom Line: American Tower Is A Buffett-Style Wonderful Company At A Fair Price

Don't get me wrong, I'm not calling a bottom on AMT, or any growth stock that's currently in a bear market.

With the Fed likely to hike rates rather aggressively in the coming months, it's very possible that AMT's 3rd worst bear market might get worse.

OR

The fact that inflation has likely peaked and could decline rapidly in 2022, plus an inverted yield curve, might cause the Fed to back off a lot sooner than investors currently expect.

In other words, reasonable people can make plausible arguments for why the 2022 correction is just getting started or has already bottomed.

That doesn't mean stocks are necessarily going to rocket higher, they might trade sideways and choppy for much of the year.

But that kind of market timing is for traders not long-term investors.

American Tower is one of the highest-quality and fastest-growing REITs in the world, powered by two of the largest secular economic trends in history.

Its skilled management team is in the top 24% of the world's greatest blue-chips for long-term risk management according to rating agencies.

And management's dedication first and foremost to a safe and rapidly growing dividend, double-digit growth every year for the foreseeable future, makes it one of the best income growth blue-chips you can buy today.

This is why iREIT recently bought more of AMT for its portfolios.

And this is why you should consider American Tower, a Buffett-style wonderful company at a fair price", for your diversified and prudently risk-managed portfolio today.

Disclosure: I/we have a beneficial long position in the shares of AMT, CCI either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.