Canaccord Genuity On Wireless REIT American Tower: 'Best Positioned Tower Company'

On April 30, Canaccord Genuity (CG) released a research note, "Strong Results And Guidance Despite FX Headwinds," updating global communications tower REIT American Tower Corp AMT after the company reported Q1 2015 earnings.

Including American Tower, there are three publicly traded wireless tower companies:

• American Tower: $40 billion cap REIT, 1.78 percent dividend yield
• Crown Castle International Corp CCI: $27.9 billion cap REIT, 3.9 percent dividend yield
• SBA Communications Corporation SBAC: $15 billion cap C-Corp, no dividend (share buybacks)

Tale Of The Tape – Past Year

The Vanguard REIT Index Fund VNQ is a good proxy for the broader equity REIT sector.

During the past 52-weeks, American Tower has traded in a range from $82.39 - $105.45 per share.

Related Link: Heard Of "Sunesys?" Here's How It Could Change Wireless Communications

Wireless Tower Business Drivers

In each country, three or four main wireless carriers typically lease tower space under long-term agreements with these communication tower giants.

Source: AMT presentation

In addition to the exponential growth of wireless voice and data driving future growth, the economic analysis in the example above suggests that it is good business for the carriers to lease rather than own the towers.

In U.S. markets, the major wireless carriers have recently been deploying billions of dollars in order to secure rights to AWS spectrum bands, which in turn will kick-off another round of capital spending for tower upgrades in coming years.

CG – American Tower: Reiterate Buy, $110 PT Unchanged

The $110 American Tower price target represents a potential upside of approximately 16.4 percent from its April 30 close of $94.53 per share.

CG did not elaborate on the methodology used to derive the current American Tower price target.

CG – American Tower: Rationale

CG noted that American Tower reported "another solid quarterly report that overcomes FX headwinds."

The closing of the U.S. Verizon tower acquisition, and TIM transactions in Brazil should contribute to future "high-single-digit core organic growth," consistent with past performance according to CG.

Net of FX, international operations produced "very solid operating results," CG reported.

Notably, CG stated that increased company guidance for revenue and adjusted EBITDA "was offset at the AFFO/share level due to additional shares outstanding."

CG "modestly increased" its AFFO estimates for 2015 and 2016, as reflected in the exhibit above.

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CG – American Tower: Post-Verizon Tower Acquisition

• Balance Sheet: By the end of 2015, American Tower "expects net debt to EBITDA to be in the mid-5x range and trending back into the company's comfort range by mid-year 2016," said CG.
• Dry Powder: CG noted, if opportunities for American Tower to bid on additional assets should arise, "such as the contemplated spin off tower assets in Mexico, we believe American could have the capability to participate."
• Leasing Momentum: CG believes American Tower is "entering a significant lease-up phase that will continue to drive solid organic growth, margin expansion with higher levels of AFFO."

CG – American Tower: Bottom Line

Canaccord Genuity believes that, "American Tower is the best positioned tower company for the combination of 4G densification and ultimate domestic 5G deployments in addition to the global trend of the majority of other markets following that of the United States when it comes to wireless broadband consumption."

  Image Credit: Public Domain