American Tower (AMT): Will Organic Growth Offset Headwinds?

On Jun 2, we issued an updated research report on leading international wireless tower operator American Tower Corporation (NYSE:AMT) .

The company reported strong financial numbers in the first quarter of 2016, with both the top and bottom line beating the Zacks Consensus Estimate.

Growth Scope

Notably, in order to support the rising demand for LTE, American Tower plans to construct nearly 2,500 sites globally in 2016. Meanwhile, India, EMEA and Latin American markets together accounted for nearly 50% of the organic core revenue growth. Increased spending on 4G LTE networks has resulted in the massive upside in organic revenues.

Meanwhile, American Tower has been focusing on India lately. The company recently completed its acquisition of a 51% controlling ownership interest in Viom Networks Ltd., a major wireless tower operator in India. The remaining 49% ownership stake will be controlled by Tata Group and several private equity firms.

American Tower paid INR 76 billion (approximately $1.14 billion) in cash and assumed around INR 51 billion of INR-denominated debt. 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, only recently, American Tower 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.

Additionally, the board of directors of American Tower approved a 4.1% hike in its quarterly cash dividend of common stock to 51 cents per share from 49 cents paid earlier. The dividend hike should bolster investor confidence in the stock and therefore improve its market position.

Risks

However, American Tower has a substantially leveraged balance sheet. At the end of the first quarter, the company had $336.4 million in cash and cash equivalents and around $16,884.2 million of outstanding long-term debt. Such high debt levels may impede sufficient cash flow generation, which is needed to meet future debt obligations. Moreover, this may keep the company from accessing the debt market and refinancing at suitable rates.

Additionally, customer concentration is very high for American Tower and the top four customers account for nearly 60% of its quarterly revenues. The loss of any of these customers or consolidation among these wireless carriers will have a significant material impact on the company’s top line. Further, foreign currency exchange rate risks, integration risks and stiff competition remain potent headwinds.

Stocks to Consider

American Tower currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same industry include Apple (NASDAQ:AAPL) Hospitality REIT, Inc. (NYSE:APLE) , CoreSite Realty Corp. (NYSE:COR) and DCT Industrial Trust Inc. (NYSE:DCT) . The companies carry a Zacks Rank #2 (Buy).

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 >>

AMER TOWER CORP (AMT): Free Stock Analysis Report

DCT INDUSTRIAL (DCT): Free Stock Analysis Report

CORESITE REALTY (COR): Free Stock Analysis Report

APPLE HOSP REIT (APLE): Free Stock Analysis Report

Original post

Zacks Investment Research