Can American Tower (AMT) Pull A Surprise In Q2 Earnings?

American Tower Corp. (NYSE:AMT) , the leading international wireless tower operator, is slated to report second-quarter 2016 results, before the opening bell on Jul 28.

Last quarter, American Tower posted a positive earnings surprise of 12.80%. Moreover, the company’s earnings surpassed the Zacks Consensus Estimate in three of the previous four quarters. Let’s see how things are shaping up for this announcement.

AMER TOWER CORP Price and EPS Surprise

AMER TOWER CORP Price and EPS Surprise | AMER TOWER CORP Quote

Factors at Play

American Tower’s Indian, EMEA and Latin American operations together accounted for nearly 50% of the organic core revenue growth. Notably, in order to support the rising demand for LTE, American Tower plans to construct nearly 2,500 sites globally in 2016. Increased spending on 4G LTE networks has resulted in the massive upside in organic revenues. Further, the company recently completed the acquisition of a 51% controlling ownership interest in Viom Networks Ltd., a major wireless tower operator in India. This transaction will not only increase the tower count to 57,000 but will also help build stronger ties with mobile network operators such as Bharti Airtel, Vodafone (LON:VOD), Idea, Tata, Reliance and Aircel. Moreover, American Tower recently forayed into Tanzania through its latest tower deal with Bharti Airtel. This deal extends American Tower’s portfolio reach and should aid top-line growth as well.

However, American Tower has a substantially leveraged balance sheet. Additionally, customer concentration is very high for American Tower and the top four customers account for nearly 60% of its quarterly revenues. Further, the ongoing consolidation trend among telecom and cable TV operators may generate significant financial fluctuations for the company. Also, foreign currency exchange rate risks, stiff competition, integration risks, rising operating expenses and its geographic diversification into the emerging Asian and Latin American markets may act as headwinds for the company, moving ahead.

Earnings Whispers

Our proven model does not conclusively show that American Toweris likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.

Zacks ESP: American Tower has an earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.33.

Zacks Rank: American Tower has a Zacks Rank #3 (Hold) which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here are a few companies to consider instead as our model shows that they have the right combination of elements to post an earnings beat this quarter.

Open Text Corporation (NASDAQ:OTEX) , with an earnings ESP of +1.10% and a Zacks Rank #1.

Intel Corporation (NASDAQ:INTC) , with an Earnings ESP of +1.52% and a Zacks Rank #2.

LG Display Co. Ltd. (NYSE:LPL) , with an earnings ESP of +50.00% and a Zacks Rank #2.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>