Company Profile (excerpt from Reuters): American Tower Corporation (ATC), incorporated on September 24, 1996, is a holding company. The Company operates as a real estate investment trust (REIT), which owns, operates and develops multitenant communications real estate. Its segments include U.S. property; Asia property; Europe, Middle East and Africa (EMEA) property; Latin America property, and Services. 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 includes tower-related services in the United States, including site acquisition, zoning and permitting and structural analysis, which primarily supports its site leasing business, including the addition of tenants and equipment on its sites.
Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$83,140,713,988||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||0.51||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||149.29%||Pass|
|6. Moderate PEmg Ratio||PEmg < 20||68.93||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||14.20||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||0.51||Fail|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||-7.99||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
|MG Growth Estimate||11.31%|
|MG Value based on 3% Growth||$39.64|
|MG Value based on 0% Growth||$23.24|
|Market Implied Growth Rate||30.22%|
|% of Intrinsic Value||221.51%|
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 $1.56 in 2015 to an estimated $2.73 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 30.22% 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 $30.04. The company pays a dividend of $3.15 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 68.94, which was below the industry average of 93.05, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-55.63.
American Tower Corp scores quite poorly in the ModernGraham grading system, with an overall grade of D.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$55.63|
|Number of Consecutive Years of Dividend Growth||7|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||12/1/2018|
|Total Current Assets||$2,385,100,000|
|Total Current Liabilities||$4,689,900,000|
|Shares Outstanding (Diluted Average)||444,436,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$3.31|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$2.73|
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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.