American Tower Corp: 5G Stock Is Bullish Ahead of Q2 Results

American Tower Stock Is Positioned Well for the Future

American Tower Corp (NYSE:AMT) might be the perfect 5G stock.

The company provides the infrastructure that mobile companies need, it has been expanding its international footprint, its stock has been on fire, and it has raised its quarterly dividends for almost 40 consecutive quarters.

With 5G still in its infancy and the need for wireless infrastructure only getting stronger, American Tower Corp’s long-term potential is stellar.

The advent of 5G technology means the long-held promise of the Internet of Things (IoT), in which devices of all kids communicate with each other, will finally become a reality.

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For that to happen, there will need to be an explosion in both the number of connected devices and the data usage per customer.

And by all accounts, that’s what’s happening now. From 2019 to 2023, the number of 5G connections is expected to grow from 10.0 million to 1.0 billion, expanding at a compound annual growth rate (CAGR) of 217.2% (Source: “IDC Forecasts Worldwide 5G Connections to Reach 1.01 Billion in 2023,” Technology for You, December 17, 2019.)

Meanwhile, mobile data usage is projected to grow at a CAGR of 23% until 2026.

You can blame data hogs like “Hulu” and Netflix” for that. On a smartphone, it takes 0.02 megabytes to send an e-mail, nine megabytes to watch a three-minute video on “Facebook” or “YouTube,” and 164 megabytes to watch a 30-minute show on Netflix or Hulu. (Source, “American Tower Corporation: An Overview: First Quarter 2021,” American Tower Corp, last accessed July 20, 2021.

The proliferation of 5G will mean a boon for chipmakers and cloud computing companies, but one of the best opportunities is in infrastructure. That’s because mobile communication companies need vertical and horizontal real estate to get their 3G, 4G, and 5G (and eventually 6G, etc.) technology to the masses.

That helps explain why American Tower Corp continues to do so well, even during a pandemic. In fact, bored, quarantined individuals help boost the demand for mobile devices and data.

As of this writing, American Tower stock is up by:

  • 17% over the last three months
  • 32% over the last six months
  • 11% year-over-year
  • 66% since bottoming in March 2020

Chart courtesy of StockCharts.com

AMT Stock Overview

American Tower Corp is a real estate investment trust (REIT) that owns and operates more than 214,000 cell towers in 23 countries on six continents, including the U.S., Canada, Asia, Latin America, Europe, and the Middle East.

The company leases space out on its towers (and the land they sit on) to wireless service providers, which install equipment on the towers to support their wireless networks.

The joy of owning towers is the economy of scale. Adding additional tenants, equipment, and upgrades generates additional revenue, with the costs to the owner remaining relatively flat. The tower is already there, and the owner simply leases out its unused space.

For example, the return on investment (ROI) with one tenant per tower is three percent, but the ROI jumps to 24% with three tenants.

The vast majority of American Tower Corp’s revenue (99%) is generated from leasing out its properties, as well as fiber and other urban telecommunications assets. (Source: Ibid.)

The REIT’s biggest clients include AT&T Inc. (NYSE:T), Verizon Communications Inc. (NYSE:VZ), and T-Mobile US Inc (NASDAQ:TMUS). (Source: “Introduction to the Tower Industry and American Tower,” American Tower Corp, last accessed July 20, 2021.)

Acquisition of InSite Wireless Group, LLC

In December 2020, American Tower closed on the $3.5-billion acquisition of InSite Wireless Group, LLC, which owned, operated, and managed approximately 3,000 communications sites, primarily in the U.S. and Canada. (Source: “American Tower Closes InSite Wireless Group Acquisition,” American Tower Corp, December 23, 2020.)

The InSite Wireless portfolio includes more than 1,400 towers in the U.S., more than 200 towers in Canada, and roughly 70 distributed antenna system networks in the U.S. InSite Wireless also controls more than 600 land parcels under communications sites and approximately 400 rooftop sites.

In addition to marking American Tower Corp’s foray into the Canadian 5G market, the acquisition is expected to enhance the company’s organic growth and cash-flow trajectory. American Tower expects the acquisition to generate approximately $150.0 million in property revenue and $115.0 million in gross margin in 2021.

Acquisition of Telxius Towers

In January 2021, American Tower announced that it had entered definitive agreements with Telefónica S.A. (NYSE:TEF) to acquire Telxius Towers. The $9.4-billion agreement includes 31,000 existing communications sites in Germany, Spain, Brazil, Chile, Peru, and Argentina. (Source: “American Tower Announces Telxius Towers Acquisition,” American Tower Corp, January 13, 2021.)

American Tower expects the assets to generate approximately $775.0 million in property revenue, $410.0 million in gross margin, and $390.0 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the communications sites’ first full year in its portfolio.

Partnership With Allianz Capital Partners

In May, American Tower sold a 30% stake in ATC Europe to Canadian investment firm Caisse de dépôt et placement du Québec (also known as CDPQ), in a transaction valued at €1.6 billion ($1.9 billion). (Source: “American Tower Partners With CDPQ in Europe,” American Tower Corp, May 5, 2021.)

In June, American Tower announced that it had entered a partnership with Allianz Capital Partners. Through the agreement, American Tower will sell a 10% stake in ATC Europe to Allianz Capital for more than €530.0 million ($630.0 million). (Source: “American Tower Partners With Allianz in Europe,” American Tower Corp, June 16, 2021.)

This transaction gives ATC Europe an enterprise value of more than €8.8 billion ($10.4 billion).

Strong Q1 Results

In April, American Tower announced that its first-quarter revenue increased by 8.3% year-over-year to $2.2 billion. Its total property revenue increased by 7.9% to $2.1 billion. (Source: “American Tower Corporation Reports First Quarter 2021 Financial Results,” American Tower Corp, April 29, 2021.)

The REIT’s first-quarter net income climbed by 55.8% to $652.0 million, while its net income attributable to common shareholders went up by 55.4% to $645.0 million. Its net income per common diluted share increased by 55.9% to $1.45.

American Tower Corp’s adjusted EBITDA grew by 13.3% to $1.4 billion. Its consolidated adjusted funds from operations (AFFO) went up by roughly 24% to $1.1 billion, or $2.52 per share.

Tom Bartlett, CEO, commented, “We began 2021 by entering into the Telxius Towers transaction, which we expect to be transformational for our European business.” (Source Ibid.)

He continued, “Our global teams followed that by delivering a strong quarter, highlighted by elevated demand for our sites, the construction of nearly 2,000 new towers and highly attractive growth in Consolidated AFFO per Share.”

American Tower Corp’s momentum is expected to continue in 2021, with:

  • Total property revenue between $8.5 and $8.6 billion, which, at the midpoint, represents year-over-year growth of 7.5%
  • Full-year net income between $2.3 and $2.4 billion, representing year-over-year growth of 37.5%
  • Adjusted EBITDA between $5.6 and $5.7 billion, for growth of 9.6%
  • Consolidated AFFO between $4.1 and $4.2 billion, for growth of 9.1%

Quarterly Dividend Increases for 37th Straight Quarter

One of the benefits of investing in a REIT is that it has to legally distribute at least 90% of its taxable income to investors in the form of dividends.

Since 2012, AMT stock has raised its dividend payout every single quarter. In the second quarter of 2020, American Tower stock paid out $1.10 per unit, and in the first quarter of 2021, it paid out $1.24 per unit. (Source: “Dividend History, “American Tower Corp, last accessed July 20, 2021.)

In May, the company announced a second-quarter dividend of $1.27 per share, for a yield of 1.8%.

Analyst Take

American Tower Corp is one of the world’s largest 5G infrastructure REITs. And it continues to get bigger.

The company generated excellent results in 2020, with that momentum continuing in 2021. This year, American Tower reported great first-quarter results and its acquisition of Telxius Towers, which should help establish the company as a 5G infrastructure leader in Europe.

All that makes AMT stock attractive to investors.