REIT Stocks

American Tower Corp Valuation – February 2017 $AMT

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how American Tower Corp (AMT) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): American Tower Corporation (ATC) is a holding company. The Company operates as a real estate investment trust (REIT), which owns, operates and develops multitenant communications real estate. ATC’s segments include U.S. property, Asia property, EMEA property, Latin America property, Services and Other. Its primary business is property operations, which include the leasing of space on communications sites to wireless service providers, radio and television broadcast companies, wireless data providers, government agencies and municipalities, and tenants in various other industries. Its U.S. property segment includes operations in the United States. Its Asia property segment includes operations in India. The EMEA property segment includes operations in Germany, Ghana, Nigeria, South Africa and Uganda. The Latin America property segment includes operations in Brazil, Chile, Colombia, Costa Rica, Mexico and Peru. Its services segment offers tower-related services in the United States.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of AMT – February 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $48,226,761,654 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.90 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 242.41% Pass
6. Moderate PEmg Ratio PEmg < 20 66.23 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.36 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.90 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -123.90 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $1.73
MG Growth Estimate 8.24%
MG Value $43.31
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $25.13
MG Value based on 0% Growth $14.73
Market Implied Growth Rate 28.86%
Current Price $114.79
% of Intrinsic Value 265.07%

American Tower Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.12 in 2012 to an estimated $1.73 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 28.86% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into American Tower Corp revealed the company was trading above its Graham Number of $26.63. The company pays a dividend of $2.08 per share, for a yield of 1.8% Its PEmg (price over earnings per share – ModernGraham) was 66.23, which was above the industry average of 31.91. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-52.51.

American Tower Corp scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$52.51
Graham Number $26.63
PEmg 66.23
Current Ratio 0.90
PB Ratio 7.36
Current Dividend $2.08
Dividend Yield 1.81%
Number of Consecutive Years of Dividend Growth 5

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $1,370,756,000
Total Current Liabilities $1,519,553,000
Long-Term Debt $18,436,144,000
Total Assets $30,655,527,000
Intangible Assets $16,555,188,000
Total Liabilities $23,948,131,000
Shares Outstanding (Diluted Average) 429,925,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.00
Dec2015 $1.41
Dec2014 $2.00
Dec2013 $1.38
Dec2012 $1.60
Dec2011 $0.99
Dec2010 $0.92
Dec2009 $0.61
Dec2008 $0.84
Dec2007 $0.13
Dec2006 $0.06
Dec2005 -$0.60
Dec2004 -$1.10
Dec2003 -$1.56
Dec2002 -$5.95
Dec2001 -$2.35
Dec2000 -$1.15
Dec1999 -$0.34
Dec1998 -$0.59
Dec1997 -$0.04

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.73
Dec2015 $1.56
Dec2014 $1.55
Dec2013 $1.25
Dec2012 $1.12
Dec2011 $0.82
Dec2010 $0.66
Dec2009 $0.42
Dec2008 $0.17
Dec2007 -$0.31
Dec2006 -$0.96
Dec2005 -$1.76
Dec2004 -$2.36
Dec2003 -$2.75
Dec2002 -$2.93
Dec2001 -$1.24
Dec2000 -$0.60

Recommended Reading:

Other ModernGraham posts about the company

American Tower Corp Valuation – November 2015 Update $AMT
26 Companies in the Spotlight This Week – 11/22/14
American Tower Corporation Annual Valuation – 2014 $AMT

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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