American Tower Corporation (AMT) is currently poised to gain from increased deployment of 3G/4G networks, aggressive buyouts of towers in emerging markets, and significant margin improvement.
In Nov 2014, American Tower decided to acquire over 4,800 mobile phone towers from India’s biggest telecommunications company – Bharti Airtel Ltd. The latter’s Netherlands-based unit has agreed to sell its telecommunications towers in Nigeria to American Tower for approximately $1.05 billion.
In addition, the company has also decided to acquire 6,480 telecom towers from TIM Celular S.A., a subsidiary of Telecom Italia S.p.A., for about $1.2 billion. The first portfolio includes around 5,240 towers. The second consists of about 1,240 towers, which are subject to certain pre-emptive acquisition rights held by third parties.
American Tower has been aggressively building its portfolio through acquisitions, including 4,600 towers acquired earlier through the takeover of BR Towers, and 2,790 purchased from Latin American telecom service provider NII Holdings. We believe these acquisitions will drive the company’s top line higher in the long run.
However, American Tower’s frequent purchases have their own hazards. Continuous acquisition of towers, mainly outside the U.S., may lead to integration risks. Integration is a lengthy process as it takes time to properly assimilate operations, communications tower portfolios and employees given that every country is governed by different laws and policies.
To add to the woes, American Tower has a substantially leveraged balance sheet. The company exited the third quarter of 2014 with nearly $13 billion of debt and a debt-to-capitalization ratio of 0.75. Such high levels of debt increase the possibility that the company will fail to generate sufficient cash to meet its future debt obligations. Moreover, American Tower’s future acquisition and share buyback plans will tend to face barriers. It may also hinder the company’s effort to access the debt market to borrow and refinance at favorable rates.
American Tower currently has a Zacks Rank #3 (Hold).
Key Picks in the Sector
Better-ranked stocks in this sector include Aviv REIT, Inc. (AVIV), CatchMark Timber Trust, Inc. (CTT) and Chambers Street Properties (CSG). All these stocks hold a Zacks Rank #2 (Buy).
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