2 Analysts Just Upgraded This Infrastructure REIT

Analyst upgrades of a stock often create headlines, but should investors really care about analyst upgrades? The answer is, “Yes.”

A great deal of research has determined that analyst upgrades of a stock often lead to outperformance of its share price, both short and long term. Part of this is the impetus from the upgrade itself, and part has to do with the stock’s improving financial metrics that led to the upgrade.

The prestige of the analyst or brokerage/bank making the upgrade has also been shown to have an effect on the stock’s performance, with large, well-known brokerages and banks carrying more weight.

While it’s nice to see one analyst upgrading a stock, having two prestigious analyst upgrades in one week is likely to propel a stock higher. Take a look at one real estate investment trust (REIT) that gained almost 5% over the last four trading days after receiving two analyst upgrades within just a few days of each other:

American Tower Corp. (NYSE:AMT) is a Boston-based infrastructure REIT that calls itself “a global leader in wireless infrastructure.” American Tower was founded in 1995 and owns, operates and develops wireless and broadcast communications real estate. Most of its business is leasing space on wireless and broadcast towers.

American Tower has a presence in 223,000 global communication sites in 25 countries spanning six continents. About 43,000 of those properties are in the U.S. and Canada, and approximately 180,000 are international properties.

American Tower has a five-year total return of 88.26%.

In December, American Tower announced another quarterly dividend hike to $1.56 per share, the 20th time it’s raised its dividend since 2017.

The annual dividend rate of $6.24 now yields 2.68% on the stock’s most recent closing price of $232.81. With forward funds from operations (FFO) of $12.65, the payout ratio is a safe 49%. Because the FFO covers the dividends so easily and with its dividend growth history, future hikes are possible.

On Jan. 10, Goldman Sachs analyst Brett Feldman upgraded American Tower from Neutral to Buy and raised his price target from $215 to $245. That represents a potential 5.2% increase from present levels.

Referring to higher interest rates causing American Tower to underperform in 2022, Feldman noted, “Our analysis implies that rates-driven pressure on towers and data centers stocks has historically created attractive buying opportunities, and we hold the same view heading into 2023.” 

Feldman also believes that American Tower will achieve higher organic growth than other data REITs and trades at a lower (23x) adjusted funds from operations (AFFO) level than other data REITs.

Only two days later, Deutsche Bank AG analyst Matthew Niknam upgraded American Tower from Hold to Buy and raised his price target from $240 to $254. That represents a potential 9.1% increase from present levels.

Niknam’s view is that American Tower will surpass its rivals in FFO over the next several years and that its international diversity will position it to be a top recipient of mobile data growth going forward.

While analyst upgrades carry weight and these two upgrades were significant, investors should not totally rely on them to make long-term investment decisions. It’s still vital to thoroughly research a company whose stock is receiving positive attention from analysts in order to make the best purchases.

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