AMT Stock Study (8-24-23)

Posted by Mark on November 8, 2023 at 06:25 | Last modified: August 24, 2023 14:36

I recently did a stock study on American Tower Corp. (AMT) with a closing price of $177.84.

M* writes:

     > American Tower [a REIT] owns and operates more than 220,000
     > cell towers throughout the U.S., Asia, Latin America, Europe, and
     > Africa. It also owns and/or operates 25 data centers in eight
     > U.S. markets after acquiring CoreSite. On its towers, the company
     > has a very concentrated customer base, with most revenue in each
     > market being generated by just the top few mobile carriers. The
     > company operates more than 40,000 towers in the U.S., which
     > accounted for roughly half of the company’s total revenue in 2022.
     > Outside the U.S., American Tower operates over 75,000 towers in
     > India, almost 50,000 towers in Latin America (dominated by Brazil),
     > 30,000 towers in Europe, and nearly 25,000 towers in Africa.

AMT is organized as a REIT, which are not recommended as club investments for reasons explained here. I did not realize this recently in selecting CCI to study. Having done CCI, I am interested to study AMT to compare and contrast the two.

Over the past decade, this large-size company has grown sales and earnings at annualized rates of 12.7% and 15.5%, respectively. Lines are mostly up, straight, and parallel except for EPS declines in ’15, ’20, and ’22. PTPM leads peer and industry averages while ranging from 15.5% in ’18 to 30.2% in ’21 with a last-5-year mean of 21.9%.

Also over the past decade, ROE leads peer and industry averages while trending up from 15.4% in ’13 to 28.3% in ’22 with a last-5-year mean of 36.0%. Debt-to-Capital is higher than peer and industry averages while increasing from 80.4% in ’13 to 89.4% in ’22 with a last-5-year mean of 87.3%.

Quick Ratio is 0.5 and Interest Coverage is 1.7. Value Line gives an “A” rating for Financial Strength while M* gives a “Standard” rating for Capital Allocation.

I profess ignorance with regard to REITs. I’m not sure if the requirement to pay out 90% or more of their taxable profits to shareholders in the form of dividends affects ratios like Debt-to-Equity, Quick, or Interest Coverage. All three of these seem undesirable to me, but Value Line’s “A” rating along with M* comments suggest them to be no big deal.

With regard to sales growth:

• CNN Business projects 2.8% YOY and 3.2% per year for ’23 and ’22-’24, respectively (based on 15 analysts).
• YF projects YOY 3.2% and 2.8% for ’23 and ’24, respectively (16 analysts).
• Zacks projects YOY 3.1% and 3.4% for ’23 and ’24, respectively (8).
• Value Line projects 4.7% growth per year for ’22-’27.
• CFRA projects 3.5% YOY and 2.9% per year for ’23 and ’22-’24, respectively.
• M* gives a 2-year ACE of 2.5% per year and projects 5-year annualized growth of 7.0% in its analyst report.

I am forecasting toward the lower end of the range at 6.0% per year.

With regard to EPS growth:

• CNN Business projects 7.3% YOY and 13.4% per year for ’23 and ’22-’24, respectively (based on 15 analysts), along with 5-year annualized growth of 13.3%.
• MarketWatch projects annualized contraction of 12.0% and 4.3% for ’22-’24 and ’22-’25, respectively (20 analysts).
• Nasdaq.com projects growth of 7.9% YOY and 7.8% per year for ’24 and ’23-’25 (6/7/3 analysts for ’23/’24/’25).
• Seeking Alpha projects 4-year annualized growth of 6.6%.
• YF projects YOY growth of 5.2% and 19.9% for ’23 and ’24 (14), along with 5-year annualized growth of 10.9%.
• Zacks projects YOY 0.5% contraction and 7.8% growth for ’23 and ’24, respectively (6), along with 5-year annualized growth of 14.3%.
• Value Line projects 9.5% growth per year from ’22-’27.
• CFRA projects 2.6% YOY contraction and 2.1% growth per year for ’23 and ’22-’24, respectively.
• M* projects long-term annualized growth of 17.0%.

I am forecasting below the long-term-estimate range (mean of six: 11.9%). Given the 32.5% YOY EPS decline in ’22, I will use that $3.82/share as the initial value rather than ’23 Q2 EPS of $2.07 (annualized).

My Forecast High P/E is 45.0. Over the past decade, high P/E ranges from 53.2 in ’14 to 76.6 in ’22 with a last-5-year mean of 64.0. The last-5-year-mean average P/E is 53.1. I am forecasting below the range [and above my personal comfort zone but REITs may have high P/E’s for reasons unbeknownst to me; I noticed something similar with CCI].

My Forecast Low P/E is 35.0. Over the past decade, low P/E ranges from 34.9 in ’21 to 61.6 in ’15 with a last-5-year mean of 42.2. I am forecasting near the bottom of the range (only ’21 is lower).

My Low Stock Price Forecast (LSPF) of $133.70 is default based on $3.82/share initial value. This is 24.8% less than the previous close and 22.5% less than the 52-week low.

Over the past decade, Payout Ratio ranges from 70.0% in ’14 to 153% in ’22 with a last-5-year mean of 114%. My 70.0% forecast is bottom of the range.

These inputs land AMT in the HOLD zone with a U/D ratio of 1.3. Total Annualized Return (TAR) is 7.2%.

PAR (using Forecast Average—not High—P/E) is 4.9%, which is less than the current yield on T-bills. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 67 studies (my study and 25 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 7.0%, 10.0%, 56.4, 41.0, and 102%. I am lower across the board. Value Line has NMF for projected average annual P/E [this may or may not have something to do with being a REIT].

MS high / low EPS are $5.59 / $2.84 vs. my $5.11 / $3.82 (per share). My high EPS is lower due to a lower growth rate. Both mine and MS are conservative compared to M* and Value Lines’ projected [high] EPS of $8.38 and $6.00/share, respectively.

MS LSPF of $126.00 implies a Forecast Low P/E of 44.4 as opposed to the above-stated 41.0. MS LSPF is 8.2% greater than the default $2.84/share * 41.0 = $116.44, which results in more aggressive zoning. MS LSPF is 5.8% less than mine, however.

My TAR (over 15.0% preferred) is much less than the 12.1% from MS.

MOS backing the current study seems robust.

I track a few different valuation metrics. PEG is 1.3 per Zacks (fairly valued). Relative Value per M* is significantly overvalued at 1.6 [(current P/E) / 5-year-mean average P/E]. Kim Butcher’s “quick and dirty DCF”—25.0 * [$12.10 – ($8.36 + $3.90)]—prices the stock at -$4.00, which is NMF and clearly a result of the dividend payout [characteristic of REITs] being so high.

AMT is a BUY under $157. To satisfy my minimum required TAR, I probably need to see the stock at $115 or less given a forecast high price of $230. With the stock already near the 52-week low, this strikes me as unusual.