In this article, let's take a look at American Tower Corporation (AMT, Financial), a $39.95 billion market cap company, which operates the largest independent portfolio of wireless communications and broadcast towers in North America.
Outperforming the Industry
The company has good diversified model. It operates in an industry where it is difficult to gain competitive advantages over comps, but it has managed to outperform its peers.
We say this because all the companies have the same operating model, which consists on owning wireless towers and lease them to telecommunication operators.
International Operations
International exposure seems to be a good thing. For example, in Latin America´s markets the company can pass the rent costs to its customers.
One third of rental revenue is generated in international markets, because new towers are outside the U.S. We think the company will expand in those markets, and reach about 40% of revenue by 2016.
Revenues, Margins and Profitability
Looking at profitability, revenue grew by 28.5% and led earnings per share increased in the most recent quarter compared to the same quarter a year ago ($0.5 vs $0.45). During the past fiscal year, the company reported lower earnings of $1.38 versus $1.60 in the previous year. This year, Wall Street expects an improvement in earnings ($2.15 versus $1.38).
The operating margin is at 35.89% and is ranked higher than 70% of the 830 Companies in the REIT - Diversified industry, while net margin is at 18.63%.
Finally, let´s compare the best measure of performance for a firm's management: the return on equity. The ROE is useful for comparing the profitability of a company to that of other firms in the same industry.
| Ticker | Company | ROE (%) |
| AMT | American Tower | 19.25 |
| IRM | Iron Mountain Inc. | 36.85 |
| EPR | EPR Properties | 11.02 |
| PSA | Public Storage | 12.13 |
| Â | Industry Median | 6.62 |
The company has a current ROE of 19.25% which is higher than the industry median and the one exhibit by EPR Properties (EPR, Financial) and Public Storage (PSA, Financial). In general, analysts consider ROE ratios in the 15-20% range as representing attractive levels for investment. So for investors looking those levels or more, Iron Mountain (IRM, Financial) could be the option. It is very important to understand this metric before investing and it is important to look at the trend in ROE over time.
The ROE has improved slightly when compared to the same quarter one year prior.
Relative Valuation
In terms of valuation, the stock sells at a trailing P/E of 54.7x, trading at a premium compared to an average of 26.6x for the industry. To use another metric, its price-to-book ratio of 9.5x indicates a premium versus the industry average of 1.3x while the price-to-sales ratio of 10.10x is above the industry average of 7.97x.
As we can see in the next chart, the stock price has an upward trend in the five-year period. If you had invested $10.000 five years ago, today you could have $26.702, which represents a 21.8% compound annual growth rate (CAGR).
As we can appreciate the company's shares jumped by 31.22% over the past year.
Final Comment
American Tower has more than half of its communication sites outside the U.S. This obviously contributes to a major diversification. An important fact to mention is that it has the longest contracts when compared to its peers, and this means a less operating volatility.
Hedge fund gurus like Paul Tudor Jones (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Jim Simons (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio) and Ron Baron (Trades, Portfolio) added this stock to their portfolios in the third quarter of 2014, as well as Caxton Associates (Trades, Portfolio).
Disclosure: Omar Venerio holds no position in any stocks mentioned
