Muddy Waters Initiates American Tower With Strong Sell, Shares Tank (AMT)

Noted private research firm Muddy Waters released a note this morning on American Tower AMT initiating the stock as a strong sell and highlighting that it has reported the company to the SEC for misreporting sale prices of towers in Brazil.

Investment Thesis

"We rate American Tower Corp. a Strong Sell and value it at $44.57 per share, representing downside of 40%," wrote Muddy Waters. "AMT has serious challenges domestically and internationally that have not been factored into the stock price. It has engaged in a value destroying investment binge overseas, and we have identified a significant material misstatement in the Company's accounts that could amount to fraud."

"There is an approximately US$250 million discrepancy between what AMT claims to have paid for the acquisition of towers in Brazil, and the actual selling price" continued Muddy Waters. "AMT claimed to have paid US$585.4 million for the towers, but the real price was close to US$300 million. If AMT is aware of this discrepancy, it would amount to fraud. We have provided our research to the SEC."

Is American Tower A Bank?

Muddy Waters also questions whether or not American Tower is lying about its sources of revenues. They even go so far as to accuse the company of relying on lending to boost revenues and hide weakness in the company. "AMT's international business is in part a de facto lending business that artificially inflates revenue, EBITDA, and AFFO."

Also, they accuse the company of running a massive carry trade with its international business. They note that the company has made several currency hedges that appear more as levered directional currency bets that pose large risks. In fact, they believe that these bets have already gone sour.

Further, they note that the IRR's of the company are actually below the cost of capital for the company and that wireless carriers are actually trying to shift away from towers and to cheaper alternatives such as WiFi for delivering data. "While wireless data usage will grow, much of this growth will circumvent cellular towers. Wi-Fi and more recently introduced technologies are making towers the data delivery option of last resort."

Analysts Know Nothing

And in a shot against Wall Street analysts, Muddy Waters accuses analysts of not knowing the company and failing to recognize the risks that the company presents to investors. "We have reviewed five analyst models, and it is clear that they do not understand the company or know how to model it."

American Tower shares traded lower on the news, dropping to $72.47 from yesterday's close of $74.67. Muddy Waters's Carson Block appeared on Bloomberg TV at 11:30 am EST Wednesday morning to discuss the ratings.