On Dec 30, 2014, Zacks Investment Research downgraded leading global wireless communications tower operator American Tower Corporation (AMT) by a notch to a Zacks Rank #4 (Sell).
After registering positive earnings surprises of 4.1% and 11.5% in the first and second quarters of 2014, American Tower witnessed a negative earnings surprise of 10.7% in the third quarter that hurt investors’ sentiment and the analysts covering the stock took a cautious view on the stock’s future performance. This is well evident from the falling Zacks Consensus Estimate in the past 60 days.
The company reported earnings per share of 50 cents that missed the Zacks Consensus estimate by 10.7%. Consequently, the Zack Consensus Estimate for the current year dropped 5% to $2.10. For the fourth quarter as well, the Estimate has gone down by 13.8% to 50 cents.
American Tower is rapidly expanding in the international markets, especially in the emerging Asian and Latin American markets. Although this geographic diversification will boost revenues in the long run, it is weighing on margins at the moment. Tower operations in the emerging markets are not as profitable as that in the U.S. market. In the third quarter, gross margin from the international business stood at 61%, significantly lower than a margin of 79.8% from domestic operations.
We believe stiff competition, integration risks, rising operating expenses and a highly leveraged balance sheet may act as headwinds for the company, moving ahead.
Stocks to Consider
However, better-ranked stocks worth considering in this sector include Arbor Realty Trust Inc. (ABR), Ashford Hospitality Trust, Inc. (AHT) and Corrections Corporation of America (CXW). All the three stocks hold a Zacks Rank #1 (Strong Buy).
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