Today we have a speculative idea: take shares of American telecom-REIT American Tower (NYSE: AMT), in order to capitalize on the growth of investments in 5G.
Growth potential and validity: 14% behind 15 months without dividends; 8% per annum during 15 years including dividends.
Why stocks can go up: investors will peck at dividends and the promising topic of 5G.
How do we act: we take shares on 259,04 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
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Investment editorial office
What the company makes money on
This is a REIT, which rents towers to accommodate the infrastructure of telecommunications companies. The reason for the existence of AMT as a REIT company is, to pay dividends to shareholders - something like 90% from REIT profit.
An overview of the American Tower business and an explanation of the details of the functioning of the REIT, we already wrote, so we won't repeat ourselves here..
Arguments in favor of the company
Fell down. Stocks have tumbled from all-time highs of 303 to 259,04 $ - or almost 14,7%. Think, we can take stock in anticipation of a rebound. Let's figure it out, what are the reasons for rebound.
Something about 5G. Demand for telecom infrastructure in the US - and in the world as a whole - will grow due to the massive introduction of 5G. This can also attract many wealthy investors to AMT shares and, at the same time, will contribute to a gradual increase in the company's income and its dividends..
From the point of view of a long-term investor from among the institutional players, AMT is a good option to make some money on the technological shift.. And at the same time, the option is quite reliable., because the business of the company, essentially, nothing threatens: the world is firmly hooked on the Internet and requires ever higher speeds, with or without a pandemic. Even more with the pandemic.
Biden. Biden's infrastructure plan includes $65 billion to increase US access to the Internet. This will improve the situation for telecom companies and stimulate an increase in business investments in infrastructure., which will further enhance the positive effect of the above paragraph.
The positive effect of diversification. This week, the company announced the purchase of another telecom REIT - CoreSite. CoreSite deals mainly with data centers, and that means, what soon 7% AMT revenue will be provided by a segment of data centers - cloud computing. This area is dominated by big tech companies like Microsoft., That, unlike conventional telecoms, extremely marginal and do not count money. So I would humbly hope that, that this part of the AMT business will perform very well, but this argument is more in favor of long-term investment.
Also, maybe, it will attract new investors into the shares, who will think, that the cloud business will grow at AMT faster than towers. For most investors, it is extremely common to have high expectations from cloud companies - this is indicated by the inflated capitalization of these companies.. So that, maybe, acquisition of CoreSite will add speculative appeal to AMT quotes.
Money doesn't lie without a body! Taking into account the new acquisitions of the company, the dividend yield of the shares will soon be 2,22% per annum. Without these acquisitions, it amounts to 2,02%.
Most investors really want to, to make their money work, And, given the high stability of the company's business and the halo of prospects for the telecom theme, I think, that lovers of passive income can crowd into stocks, which will allow to pump up quotes.
P / E at AMT is not very arrogant - 49, although in the case of a REIT look at P / E is meaningless, because REITs are invested for passive income. In any case, AMT returns are well above the average for S&P 500 — 1,26% per annum, so dividends here are a tangible argument in favor of AMT shares. Especially considering the hype surrounding 5G.
What can get in the way
Debts. CoreSite bought at exorbitant prices - for 10.1 billion dollars - this is 15.78 annual revenues. The new purchase will increase the dividends paid by AMT by 10%.
At the same time, the purchase of CoreSite will definitely increase the debt burden of AMT.. And it's so big: 50,841 billion dollars in arrears, of which 6.524 billion must be repaid within a year. The company does not have much money in its accounts - 3.277 billion, plus, it can scrape together about 1.17 billion more - these are the debts of counterparties and money, postponed just in case. So the debts will rise even more.
In general, the company is very lucky, that she could borrow money at low interest for several years, but higher rates are ahead - so the debt will become more difficult to service. Investors may also start to shy away from the company's shares., who are worried about the large amount of debts. And of course, the severity of the debt service can lead to a company cutting dividends and a drop in its shares.
Impudent, don't get too bold. We should not expect a wild increase in the profitability of the company's business over the next two years.. Most of her contracts expire in 2024, and the ceiling for the increase in rent is 3% in year.
So the demand for 5G towers, maybe, and high, but the company cannot yet increase prices strongly, because most of its towers are already leased out and rental prices there will not grow much to 2024. Company, certainly, can expand by buying up competitors and increase the rental price at new facilities, but that would require her to increase her debt burden.
What, if a. The company's business seems to be stable, but any force majeure like hacker attacks and local disasters can greatly affect its quotes. Basically, this can be said about any company, but, Considering, that AMT already received a large credit of trust from investors, any force majeure can have an extremely negative impact on the company's quotes during a couple of trading sessions.
Storm. Considering all the listed negative points, company shares can shake: they are still expensive, and their dividend yield is not very high.
What's the bottom line?
With reluctance, we take stocks now by 259,04 $. And then there are two options.:
- waiting for growth until 296 $. Think, this level we will be able to reach in the following 14 Months;
- We hold the following promotions 15 years, to see, how the company will embody the dream of all rentiers: will collect rent from trouble-free tenants, which will not damage the property much.
