AMT Stock Study (6-4-24)

Posted by Mark on July 11, 2024 at 06:58 | Last modified: June 4, 2024 11:58

I recently did a stock study on American Tower Corp. (AMT) with a closing price of $196.97. The previous study is here.

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 28 data centers in 10
     > 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 2023.
     > 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.

Over the last 10 years, this large-size company (REIT) has grown sales and earnings at annualized rates of 11.3% and 27.1%, respectively. Lines are mostly up, straight, and parallel except for an EPS decline in ’15 [my previous First Cut on 8/24/23 also showed YOY declines for ’20, and ’22. The numbers have changed].

Over the past decade, PTPM leads (lags) industry (peer) averages while ranging from 13.7% in ’23 to 30.2% in ’21 with a last-5-year mean of 21.6%. ROE leads industry (peer data unavailable) averages while trending up from 18.9% (’14) to 102% (’23) with a last-5-year mean of 77.9%. Debt-to-Capital is higher than industry (peer data unavailable) averages while increasing from 78.7% (’14) to 91.8% (’23) with a last-5-year mean of 89.7%.

Quick Ratio is 0.5 and Interest Coverage is 2.5. Value Line gives a “B++” rating for Financial Strength (down from “A” nine months ago) while M* gives a “Standard” rating for Capital Allocation. M* and CFRA both note the company has been deleveraging with Net Debt/EBITDA now down to (or below) 5.0 (still seems high to me?).

With regard to sales growth:

• YF projects YOY 0.7% growth and 3.1% contraction for ’24 and ’25 (based on 16 analysts).
• Zacks projects YOY 0.3% growth and 6.0% contraction for ’24 and ’25 (4 analysts).
• Value Line projects 2.3% growth per year for ’23-’28.
• CFRA projects 0.5% YOY growth for ’24 and 1.3% contraction per year for ’23-’25.
• M* gives a 2-year ACE of -1.7% 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 1.0% per year.

With regard to EPS growth:

• MarketWatch projects 30.3% and 23.4% per year for ’23-’25 and ’23-’26, respectively (based on 22 analysts).
• Nasdaq.com projects 3.1% YOY and 4.7% per year for ’25 and ’24-’26 (5 / 5 / 3 analysts for ’24 / ’25 / ’26).
• Seeking Alpha projects 4-year annualized growth of 18.3%.
• YF projects YOY 109% growth for ’24, 0.9% contraction for ’25, and 5-year annualized growth of 33.6% (12).
• Zacks projects YOY growth of 5.3% and 3.1% for ’24 and ’25 along with 5-year annualized growth of 14.0% (5).
• Value Line projects 20.3% growth per year from ’23-’28.
• CFRA projects growth of 6.0% YOY and 4.6% per year for ’24 and ’23-’25, respectively.
• M* projects long-term annualized growth of 15.1%.

My 7.0% forecast is below the long-term-estimate range (mean of five: 20.2%). Initial value is ’23 EPS of $9.87/share.

My Forecast High P/E is 23.0. Over the past decade, high P/E falls from 53.2 (’14) to 23.9 (’23) with a last-5-year mean of 35.1 and a last-5-year-mean average P/E of 28.7. I am below the range.

My Forecast Low P/E is 15.0. Over the past decade, low P/E falls from 39.2 (’14) to 15.7 (’23) with a last-5-year mean of 22.4. I am below the range.

My Low Stock Price Forecast (LSPF) of $148.00 is default given initial value from above. This is 24.9% less than the previous close and 4.3% less than the 52-week low.

Over the past decade, Payout Ratio (PR) falls from 70.0% (’14) to 48.1% (’23) with a last-5-year mean of 61.2%. I am forecasting below the range at 48.0%.

These inputs land AMT in the HOLD zone with a U/D ratio of 2.6. Total Annualized Return (TAR) is 12.3%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a large-sized company at 8.6%. 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 25 studies (my study and 9 other 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 PR are 2.9%, 12.2%, 54.2, 40.6, and 118.6%. I am lower across the board. Value Line projects a future average annual P/E of 36.0 that is less than MS (47.4) but much greater than mine (19.0).

MS high / low EPS are $6.71 / $3.18 vs. my $13.84 / $9.87 (per share). Comparison is difficult because [recall near the top I said the numbers have changed?] as of 6/3/24, BI switched to display Funds from Operations (FFO) in place of EPS for REITs. Previous stock studies in MS use EPS and will be lower. P/E ranges are also based on FFO, which probably explains the disjunct between mine and MS. I can expect MS to come more into line with my study over the next 90 days.

MS LSPF of $152.10 implies a Forecast Low P/E of 47.8 as opposed to the above-stated 40.6. MS LSPF is 17.8% greater than the default $3.18/share * 41.0 = $129.11, which results in more aggressive zoning. MS LSPF is also 2.8% greater than mine.

While I can’t really compare my inputs with MS due to yesterday’s FFO change, I believe MOS to be robust in the current study. I forecast below the entire historical P/E range and significantly lowballed the EPS growth forecast relative to analysts. I feel comfortable with my forecast due to skepticism around >20% estimates from YF and Value Line. Even MarketWatch has huge 2-3-year estimates that include a 79% YOY spike in ’23. If growth is muted thereafter, then what portion should carry into the future EPS growth estimate? Not the 79% YOY spike, in my opinion (especially to be conservative).

By the way, FFO is smoother than the 2023 79% EPS spike. Sidestepping such volatility is a big reason BI made the change [even FFO shows a 99% YOY FFO spike in ’20, however; digging into the 10-K could help to understand that].

With regard to valuation, PEG is 1.4 and 3.0 per Zacks and my projected P/E: reasonably priced or overvalued? Growth rate makes all the difference. Relative Value [(current P/E) / 5-year-mean average P/E] is somewhat low at 0.78.

AMT is a BUY under $190/share. With a forecast high price ~$318, the stock has some distance to fall before satisfying the 15% TAR criterion ~$159.