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Date: April 1st, 2013
Analyst Name: Tung Linh
CIF Stock Recommendation Report (Spring 2013)
Company Name and Ticker: American Tower Corporation (AMT)
Section (A) Summary
Recommendation Buy: Yes Target Price: $84.61 (+10%)
Stop-Loss Price: $69.23 (-10%)
Sector: Financials Industry: REIT - Diversified
Market Cap (in Billions): $30.367
# of Shrs. O/S (in Millions): 395.10
Current Price: $76.92 52 WK Hi: $79.98
52 WK Low: $61.56 EBO Valuation: $62.77
Morningstar (MS) Fair Value Est.: $100.00
MS FV Uncertainty: Medium
MS Consider Buying: $70.00
MS Consider Selling: $135.00
EPS (TTM): 1.60 EPS (FY1): 2.12 EPS (FY2): 2.56 MS Star Rating: ★★★★
Next Fiscal Yr. End Year: 2013 Month: Dec
Last Fiscal Qtr. End: Less Than 8 WK: Yes
If Less Than 8 WK, next Earnings Ann. Date: April 29th, 2013
Analyst Consensus Recommendation: Outperform
Forward P/E: 30.05 Mean LT Growth: 19.77% PEG: 1.52 Beta: 0.51
% Inst. Ownership: 96.53%
Inst. Ownership- Net Buy: Yes
Short Interest Ratio: 1.30 Short as % of Float: 1.00%
Ratio Analysis Company Industry Sector
P/E (TTM) 48.15 58.22 39.36
P/S (TTM) 10.56 13.04 5.37
P/B (MRQ) 8.50 1.79 1.47
P/CF (TTM) 24.52 24.42 18.04
Dividend Yield 1.35 1.78 1.69
Total Debt/Equity (MRQ) 244.98 98.32 174.56
Net Profit Margin (TTM) 20.65 28.26 16.77
ROA (TTM) 4.51 2.07 0.98
ROE (TTM) 18.58 4.36 6.55
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Investment Thesis
Strong historical performance. Analysts have positive outlook for the company.
Converted to REIT for tax purpose while still have TRSs for financial reinvestment.
Analysts recommend Buy and Outperform.
Have best financial ratios in the industry.
EBO and Relative valuation suggest the stock price is overvalued or at it fair price.
55% dividend payout ratio, tax free dividend. The company plans to increase dividend.
Next earnings announcement is less than a month.
Summary Provide brief summary of your analysis in each section that follows
Company Profile: Leases towers to wireless providers, radio, and television broadcast companies. Converted to REIT in 2012.
Fundamental Valuation: Suggests that the stock is overvalued. Above normal growth period is five years.
Relative Valuation: Suggests that the stock is slightly undervalued. Two main competitors are Crown Castle (CCI) and SBA Communications (SBAC).
Revenue and Earnings Estimates: Have increased in the past year. Strong outlook, historical earnings are volatile compare to estimates.
Analyst Recommendations: Mean rating is 1.76. There is no major change in analyst recommendation in the past three months.
Institutional Ownership: Good institutional support. There are many well-known investment firms that own the stock.
Short Interest: Short interest is low compare to competitors. Short as percentage of float is very low, suggests that the market is bullish.
Stock Price Chart: Outperforms both the industry and market in the long-term. CCI and SBAC outperform AMT because they are cheap.
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Section (B) Company Profile
Company Summary
American Tower Corp. is an owner, operator and developer of wireless and broadcast
communications real estate. The company leases antenna space to wireless providers, radio,
and television broadcast companies. This business accounts for approximately 97% of their
total revenue for 2012.
Starting 2012, the company has converted to Real Estate Investment Trust (REIT) for tax
purpose. One of the main requirements to convert to REIT is 75% or more of revenue has to
come from real estate or real estate-related operations. Being REIT, American Tower is required
to distribute 90% profit back to shareholders in form of dividend. The good thing is this
dividend is tax-free. With the capital gain tax increase on normal dividend, I think this is a very
good strategy to avoid tax.
American Tower also has taxable REIT subsidiaries (TRSs). These TRSs are applicable for
corporate income tax. The revenue from these TRSs will help financing the company in place of
the 90% profit from REIT operations.
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Business Model, Competition, Environment and Strategy
The domestic rental and management accounts for approximately 67%, 72%, and 79%
of their total revenue for the years 2012, 2011, and 2010, respectively. AT&T, Sprint, Verizon,
and T-Mobile accounts for approximately 74% of this segment in 2012. The international rental
and management segment accounts for approximately 30%, 26%, and 19% of their total
revenue for the years 2012, 2011, and 2010, respectively. The clients include Telefonica (in
Brazil, Chile, Colombia, Mexico and Peru), Nextel International (in Brazil, Chile, and Mexico),
Vodafone (in India, Germany, Ghana, South Africa, and Uganda), Grupo Iusacell, S.A. de C.V. (in
Mexico), MTN Group Limited (in Ghana, South Africa, and Uganda). The listed customers
account for approximately 55% of this segment in 2012.
American Tower has 22,534 towers in the U.S. and 31,789 towers internationally. The
company also has 281 Distributed Antenna System (DAS) networks. These networks are used in
malls and casinos.
There are only three big players in this particular industry. According to the company
2012 10-K report, Crown Castle owns roughly 29,800 tower sites in the U.S. and 1,700 on
Australia. Their biggest customers are wireless carriers including AT&T, Verizon, Sprint, and T-
Mobile. SBA Communications, the smallest of the three, has 17,491 tower sites. The biggest
customers are AT&T, Sprint, Verizon, and T-Mobile.
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Revenue and Earnings History
The information wasn’t available on Reuters, so I use data from Morningstar Direct.
Revenue has an upward trend and doesn’t appear to have any out of order number. On the
other hand, earnings numbers are a lot more volatile, especially in 2012. I think this is the
consequence of converting the company to REIT at the beginning of 2012.
Revenue Earnings per Share (diluted)
Periods 2011 2012 Periods 2011 2012
March 563 697 March 0.23 0.56
June 597 698 June 0.29 0.12
September 630 713 September -0.04 0.58
December 653 768 December 0.51 0.34
Total 2443 2876 Total 0.99 1.6
Note: Units in Millions of U.S. Dollars Note: Units in U.S. Dollars
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Section (C) Fundamental Valuation (EBO)
Inputs
EPS forecasts (FY1 & FY2): 2.12 & 2.56
Long-term growth rate: 19.77%
Book value /share:
Book value: 3,573.1 millions
# of shares outstanding: 395.09 millions
Book value / share: 9.04
Dividend payout ratio: 55.91%
Next fiscal year end: 2013
Current fiscal month: 4
Target ROE: 4.01%
Output
Above normal growth period chosen: 5 years (2017)
EBO valuation (Implied price from the spreadsheet): $62.77
Sensitivity Analysis
EBO valuation would be:
AMT PARAMETERS FY1 FY2 Ltg
EPS Fore casts 2.12 2.56 19.77%
Book value /share (last fye ) 9.04
Discount Rate 6.17%
Divide nd Payout Ratio (POR) 55.91%
Ne xt Fsc Ye ar e nd 2013
Curre nt Fsc Mth (1 to 12) 4
Targe t ROE (industry avg .) 4.01%
Ye ar 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Long-term EPS Growth Rate (Ltg) 0.1977 0.1977 0.1977 0.1977 0.1977
Forecasted EPS 2.12 2.56 3.07 3.67 4.40 5.27 6.31
Beg. of year BV/Shr 9.044 9.978 11.107 12.459 14.078 16.017 18.340
Implied ROE 0.257 0.276 0.295 0.312 0.329 0.344
ROE (Beg. ROE, from EPS forecasts) 0.234 0.257 0.276 0.295 0.312 0.329 0.344 0.283 0.222 0.162 0.101 0.040
Abnormal ROE (ROE-k) 0.173 0.195 0.214 0.233 0.251 0.267 0.282 0.222 0.161 0.100 0.039 -0.022
growth rate for B (1-POR)*(ROEt-1) 0.000 0.103 0.113 0.122 0.130 0.138 0.145 0.152 0.125 0.098 0.071 0.044
Compounded growth 1.000 1.103 1.228 1.378 1.557 1.771 2.028 2.335 2.627 2.885 3.090 3.228
growth*AROE 0.173 0.215 0.263 0.321 0.390 0.473 0.572 0.517 0.422 0.288 0.121 -0.070
required rate (k) 0.062 0.062 0.062 0.062 0.062 0.062 0.062 0.062 0.062 0.062 0.062 0.062 0.062
Compound discount rate 1.062 1.127 1.197 1.271 1.349 1.432 1.521 1.615 1.714 1.820 1.933 2.052
div. payout rate (k) 0.559
Add to P/B PV(growth*AROE) 0.16 0.19 0.22 0.25 0.29 0.33 0.38 0.32 0.25 0.16 0.06 -0.03
Cum P/B 1.16 1.35 1.57 1.83 2.12 2.45 2.82 3.14 3.39 3.55 3.61 3.58
Add: Perpetuity
beyond current yr (Assume this yr's AROE forever) 2.63 3.09 3.56 4.09 4.69 5.35 6.10 5.19 3.99 2.57 1.01 -0.55
Total P/B (P/B if we stop est. this period) 3.80 4.44 5.14 5.92 6.80 7.80 8.92 8.33 7.38 6.11 4.62 3.02
Implie d price 35.05 41.00 47.40 54.63 62.77 71.96 82.33 76.91 68.10 56.42 42.68 27.91
Che ck:
Beg. BV/Shr 9.04 9.98 11.11 12.46 14.08 16.02 18.34 21.12 23.76 26.09 27.95 29.19
Implied EPS 2.12 2.56 3.07 3.67 4.40 5.27 6.31 5.98 5.29 4.22 2.82 1.17
Implied EPS growth 0.208 0.198 0.198 0.198 0.198 0.198 -0.052 -0.117 -0.202 -0.332 -0.585
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$82.33 if changing above normal growth period to 7 years (2019)
$73.57 if changing growth rate from mean (consensus) to the highest estimate 26.70%
$49.50 if changing growth rate from mean (consensus) to the lowest estimate 10.00%
$77.56 if changing discount rate to 5.10%
$62.77 if changing target ROE to 6%
Discount rate:
Risk free rate: 2.71%
Beta: 0.51
Market risk premium: 6.79%
I chose above normal growth period of 5 years because I think the company has strong
growth potential. Having the best results in the industry and expending internationally, I don’t
think the company will enter the maturity state any time soon. Moreover, the mobile and tablet
market is increasing at a fast pace.
According to EBO sheet, the current stock price is overvalued. When I change the
discount rate from 6.17% to 5.1%, the estimated price is on the same level as the current price.
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Section (D) Relative Valuation
From the top panel
There is only 3 big companies in this industry. Even though the company is identified as
REIT, I don’t want to include other REITs as competitor. In 2012, 97% of revenue comes from
tower rental and management operations, which is the same percentage of Crown Castle and
SBA. These companies have to spend a lot of capital to build or acquire towers, and it’ll take
time before they can pay off their huge debt and realize profit. That’s why SBA FY2 earnings
estimate is negative and ROE 5 years average of both competitors are negative. Since the mean
FY2 earnings estimate of SBA is negative, it messes up the other ratios. I think both forward P/E
and PEG are very important because they show how the market sees their future performance.
With similar current price, American Tower forward P/E is cheaper compare to Crown Castle
because of high earnings estimate. PEG also shows the same relation since their long-term
growth rates are very close. Suffer from having a smaller size, SBA is still struggling with making
a positive earnings. P/B and P/CF show similar relations: American Tower and Crown Castle
have similar ratios, while SBA is much more expensive. American Tower has the highest P/S
ratio. I think this is reasonable since the company has shown a strong growth of customer base.
Therefore, market will pay a premium for that confidence.
From the bottom panel
The median implied prices derived from P/B and P/CF are higher than the current price
while the median implied price from P/S is lower. The average of all median implied prices is
$87.60, which suggests that the stock is underpriced. Since there are only two comparable
competitors and American Tower has the strongest ratios, I think the conclusion of the
undervalued stock is uncertain.
AMT
Mean FY2
Earnings Estimate Forward Mean LT PEG P/B ROE Value P/S P/CF
Ticker Name Mkt Cap Current Price (next fiscal year) P/E Growth Rate (MRQ) 5 yr ave Ratio TTM TTM
1 CCI Crown Castle International Corp.20,714.60$ 69.64$ 1.08$ 64.48 18.95% 3.40 7.05 -1.50% -4.70 8.52 23.66
2 SBAC SBA Communications Corp.9,177.54$ 72.00$ (0.02)$ -3600.00 10.00% -360.00 14.05 -34.75% -0.40 9.62 40.89
3
4
AMT American Tower Corporation30,367.62$ 76.92$ 2.56$ 30.05 19.77% 1.52 8.50 11.48% 0.74 10.56 24.52
Implied Price based on: P/E PEG P/B Value P/S P/CF
1 CCI Crown Castle International Corp. $165.07 $172.22 $63.80 -$488.27 $62.06 $74.22
2 SBAC SBA Communications Corp. ($9,216.00) -$18,220.03 $127.14 -$42.00 $70.07 $128.27
3
4
High $165.07 $172.22 $127.14 -$42.00 $70.07 $128.27
Low -$9,216.00 -$18,220.03 $63.80 -$488.27 $62.06 $74.22
Median -$4,525.46 -$9,023.91 $95.47 -$265.14 $66.07 $101.25
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Section (E) Revenue and Earnings Estimates
Historical Surprises
Sales and Profit Figures in US Dollar (USD)
Earnings and Dividend Figures in US Dollar (USD)
Estimates vs Actual Estimate Actual Difference Surprise %
SALES (in millions)
Quarter Ending Dec-12 741.60 768.37 26.78 3.61
Quarter Ending Sep-12 716.03 713.34 2.70 -0.38
Quarter Ending Jun-12 698.49 697.73 0.76 -0.11
Quarter Ending Mar-12 671.21 696.52 25.31 3.77
Quarter Ending Dec-11 652.29 653.20 0.90 0.14
Earnings (per share)
Quarter Ending Dec-12 0.42 0.34 0.08 -19.64
Quarter Ending Sep-12 0.38 0.58 0.20 51.83
Quarter Ending Jun-12 0.40 0.12 0.28 -70.30
Quarter Ending Mar-12 0.40 0.56 0.16 40.74
Quarter Ending Dec-11 0.30 0.51 0.21 69.44
It doesn’t look like the sales and revenue have any notable trend. They are both volatile,
especially earnings. The company just converted to REIT at the beginning of 2012, they have to
use different accounting methods and convert their current financial statements. I think that’s
part the reason why the actual results are so much different from estimates.
Consensus Estimates Analysis
Sales and Profit Figures in US Dollar (USD)
Earnings and Dividend Figures in US Dollar (USD)
# of Estimates Mean High Low 1 Year
Ago
SALES (in millions)
Quarter Ending Mar-13 18 794.84 860.00 779.76 737.71
Quarter Ending Jun-13 18 814.98 842.00 797.70 759.41
Year Ending Dec-13 21 3,288.07 3,397.00 3,139.05 3,054.49
Year Ending Dec-14 20 3,595.23 3,766.00 3,443.99 3,316.96
Earnings (per share)
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Quarter Ending Mar-13 18 0.48 0.59 0.43 0.44
Quarter Ending Jun-13 18 0.51 0.56 0.46 0.47
Year Ending Dec-13 20 2.12 2.30 1.93 1.99
Year Ending Dec-14 19 2.56 2.90 2.19 2.29
LT Growth Rate (%) 3 19.77 26.70 10.00 18.87
The revenue estimate and earnings of the first quarter of 2013 seem strange. For other
estimates, the magnitude of the difference between high and low are about the same. The
difference from high is more than double the difference from low for the first quarter of 2013.
It seems like some analysts are extremely positive about the company performance.
Consensus Estimates Trend
Sales and Profit Figures in US Dollar (USD)
Earnings and Dividend Figures in US Dollar (USD)
Current 1 Week
Ago
1 Month
Ago
2 Month
Ago
1 Year
Ago
SALES (in millions)
Quarter Ending Mar-13 794.84 794.84 775.99 766.82 737.71
Quarter Ending Jun-13 814.98 814.98 792.60 782.07 759.41
Year Ending Dec-13 3,288.07 3,288.07 3,216.17 3,186.94 3,054.49
Year Ending Dec-14 3,595.23 3,595.23 3,501.92 3,458.88 3,316.96
Earnings (per share)
Quarter Ending Mar-13 0.48 0.48 0.49 0.50 0.44
Revenue Difference from High Difference from Low
Quarter Ending Mar-13 8.20% 1.90%
Quarter Ending Jun-13 3.32% 2.12%
Year Ending Dec-13 3.31% 4.53%
Year Ending Dec-14 4.75% 4.21%
Earnings Difference from High Difference from Low
Quarter Ending Mar-13 22.92% 10.42%
Quarter Ending Jun-13 9.80% 9.80%
Year Ending Dec-13 8.49% 8.96%
Year Ending Dec-14 13.28% 14.45%
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Quarter Ending Jun-13 0.51 0.51 0.51 0.52 0.47
Quarter Ending Dec-13 2.12 2.12 2.14 2.12 1.99
Quarter Ending Dec-14 2.56 2.56 2.60 2.59 2.29
Both sales and earnings estimates are trending up compare in the last year. They are all
notable in my opinion. Based on this performance estimate table, I think the analysts are
confident about the company and its ability to develop.
Estimates Revisions Summary
Last Week Last 4 Weeks
Number Of Revisions: Up Down Up Down
Revenue
Quarter Ending Mar-13 0 0 8 1
Quarter Ending Jun-13 0 0 9 0
Year Ending Dec-13 0 0 11 2
Year Ending Dec-14 0 0 12 0
Earnings
Quarter Ending Mar-13 0 0 3 7
Quarter Ending Jun-13 0 0 2 6
Year Ending Dec-13 0 0 3 9
Year Ending Dec-14 0 0 4 6
There is no revision in the last week. In the last 4 weeks, there were 40 up and 3 down
revisions for revenue, 12 up and 28 down revisions for earnings. Analysts become much more
bullish about American Tower revenue in the next two years. On the other hand, they are more
negative about earnings but it’s not clear because the up revisions is about half of the down
revisions.
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Section (F) Analysts’ Recommendations
Analyst Recommendations and Revisions
1-5 Linear Scale Current 1 Month
Ago
2 Month
Ago
3 Month
Ago
(1) BUY 9 9 9 9
(2) OUTPERFORM 8 8 8 7
(3) HOLD 4 4 5 6
(4) UNDERPERFORM 0 0 0 0
(5) SELL 0 0 0 0
No Opinion 0 0 0 0
Mean Rating 1.76 1.76 1.82 1.86
There were only two changes in the analyst recommendation in the last three months.
One analyst changed from Hold to Outperform two months ago and another one dropped out
one month ago. Reuters’ analysts are bullish about American Tower with a mean rating of 1.76.
The majority of the recommendations are either Buy or Outperform. This is in line with what I
read from Morningstar Direct analysts as well. 5 out 7 analysts recommend Buy, which is even
more bullish than Reuters.
Revision
Date
Upgrade or
Downgrade
Current
Recommendation
Previous
Recommendation
Firm Last
Revision
The most
recent
revision
date
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The earliest
revision
date in the
last two
months
In the past two months, there was no analyst upgrade or downgrade.
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Section (G) Institutional Ownership
Float percentage was calculated from data on Yahoo Finance. MSN money number was
incorrect.
Institutions, on net basis, have been slightly increased. I don’t think this shows any
market sentiment about the stock. There are two companies that hold more than 5% of stock.
T. Rowe Price is an international investment firm with $576.8 billion in assets. Fidelity is a
mutual fund company with $3.9 trillion in assets. There are other well-known investment firm
that own less that 5% such as Vanguard Group, State Street, and BlackRock. I think this is a
bullish sign for American Tower.
AMT
Ownership Activity # of Holders % Beg. Holders Shares % Shares
Shares Outstanding 395,097,464 100.00%
# of Holders/Tot Shares Held 838 104.62% 381,387,582 96.53%
# New Positions 78 9.74%
# Closed Positions 41 5.12%
# Increased Positions 371 46.32%
# Decreased Positions 366 45.69%
Beg. Total Inst. Positions 801 100.00% 375,643,469 95.08%
# Net Buyers/3 Mo. Net Chg 5 50.34% 5,744,113 1.45%
Ownership Information % Outstanding
Top 10 Institutions % Ownership 39.30%
Mutual Fund % Ownership 2.33%
Float % 99.91%
> 5% Ownership
Holder Name % Outstanding Report Date
T. Rowe Price Associates, Inc. 7.3 12/31/2012
Fidelity Management & Research Company 6.2 12/31/2012
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Section (H) Short Interest
American Tower Corporation (AMT)
Compare to the competitors, American Tower has the lowest and least volatile days to
cover. The days to cover range for each company are: American Tower: 1.23 – 2.24, Crown
Castle: 1.00 – 3.56, SBA Communications: 5.26 – 19.18. I think this is a bullish sign for the stock.
Crown Castle International Corp. (CCI)
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SBA Communications Corp. (SBAC)
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Share statistics
Avg Vol Avg Vol Shares Float (3 month) (10 day) Outstanding
2,452,140 2,211,810 395,10 M 394.75 M
Shares Short Short Ratio Short % of Float Shares Short
(as of Feb 28, 2013) (as of Feb 28, 2013) (as of Feb 28, 2013) (prior month)
3.89 M 1.30 1.00% 3.96 M
Short ratio of Crown Castle and SBA Communication are 1.50 and 8.30, respectively.
American Tower has the lowest short ratio. The short as percentage of float is 1.00% which I
think is low. These are bullish signs of the market.
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Section (I) Stock Charts
A three months price chart
Since American Tower only convert to REIT and is listed in the financials sector for tax
purpose, I will use XLK instead of XLF. Looking at the three months price chart, the sector and
the market outperformed all three companies. American Tower announced on Feb 22th, 2013
that they started operating a Distributed Antenna System (DAS) network in Florida. The 10-K
report of 2012 came out on Feb 27th, 2013. I think these are the reason why the stock shot up
around that time.
A one year price chart
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Looking at the one year price chart, it’s the opposite. All three companies outperformed
both the sector and the market. Both Crown Castle and BSA Communications outperform
American Tower in this review period. I think the reason for this is their stock prices were so
cheap at the beginning of the period. Their financial ratios aren’t good as discussed in Relative
Valuation section. When the market turn around, people want to buy cheap stock hoping they
will rebound.
A five year price chart
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The five year price chart shows similar behavior to the one year price chart. Looking at
the financial period in 2008, American Tower outperformed the two competitors. SBA shot up
at the end of the first quarter in 2012.
10 and 50-day moving average
There were two death crosses and a golden cross in between. The stock price is pretty
volatile despite the low beta. I don’t think this is a major bearish sign for American Tower. The
Relative Strength Index (RSI) is currently about 50 which indicates that the stock is at its fair
value.
50 and 200-day moving average
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The 50 days and 200 days moving average were very close in the end of 2011. After that,
the short term moving average is above the long term average until now. I think this a good sign
that the stock is steadily growing and it does show the opposite of the previous chart.
References
http://finance.yahoo.com/
http://www.reuters.com/
http://www.nasdaq.com/
http://money.msn.com/
Morningstar Direct
American Tower Corp. 2012 10-K report
