Summary
- The fundamental outlook for AMT remains strong.
- Low cost of capital alone does not make it successful, but when it is combined with double-digit ROIC growth ensues.
- Any pricing dip could be a buying opportunity for AMT.
- This idea was discussed in more depth with members of my private investing community, Retirement Income Solutions. Get started today »
American Tower (AMT) has expensive multiple, but this is one of the cases where the price seems to be fully justified by fundamentals. In addition to strong management and a healthy balance sheet, AMT has 3 major sources of growth:
- Organic rent growth
- New builds
- M&A
The tower space is a promising growth area and AMT is the dominant REIT.
In The Present Environment
Communications infrastructure seems to be one of few areas that is largely untouched by the economic impacts of coronavirus. With social distancing in place, people are using their phones more than ever before and macro towers provide the service people so desperately need when they are otherwise separated from the world. AMT's market price only briefly got hit before making a full recovery to new highs.
Source: SNL Financial
The market has correctly figured out that towers are not likely to be impacted.
Organic growth
Existing towers grow revenues through a combination of rent bumps, tenants adding additional equipment onto towers and additional tenants being added to existing towers. In combination, organic growth is expected to sum to about 5% in 2020 based on AMT's guidance.
Source: AMT
This is a bit slower than in 2019, but 2019 was an unusually high growth year. We see this growth rate continuing for some time due to the rollout of 5G.
5G has the potential to bring on significant additional equipment to handle the different bandwidth that makes 5G possible. In high density metro areas, much of 5G will be accomplished through small cells, but in more suburban areas, where AMT's towers tend to be located, 5G can efficiently be done on macro towers. When an existing tenant adds 5G equipment onto AMT's tower, rent is increased accordingly.
