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 duration: 14% for 15 months without dividends; 8% annual during 15 years including dividends.
Why stocks can go up: Investors will bite into dividends and a promising 5G theme.
How do we act: we take shares on 259,04 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. Hopefully, you know, what to do.
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 are we writing, Are forecasts and hypotheses, not a call to action. It is up to you to rely on our thoughts or not..
And what about the author's predictions
Research, for example 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 perform better than people, but alas, they work worse.
Therefore, we do not try to build complex models.. The profit forecast in the article is the author's expectations. We indicate this forecast as a guideline. As with the investment in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
We love, appreciate,
Investment editorial office
What the company makes money on
This is a REIT, which rents out towers to accommodate the infrastructure of telecommunications companies. The raison d'être of AMT as a REIT company is, to pay dividends to shareholders - something like 90% from REIT profit.
We have already written an overview of the American Tower business and an explanation of the details of the functioning of the REIT, so we will not 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%. I think, we can take stock in anticipation of a rebound. Let's figure it out, for what reasons a rebound can occur.
Something about 5G. Demand for telecom infrastructure in the US - and in the world as a whole - will grow due to the massive adoption of 5G. This can also attract many wealthy investors to AMT shares and at the same time 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. With a pandemic even more.
Biden. Biden's Infrastructure Plan Allocates $ 65 Billion To Expand Internet Access Of The US Population. This will improve the situation for telecom companies and stimulate an increase in business investment in infrastructure., which will further enhance the positive effect of the above item.
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 run by big tech companies like Microsoft., which, unlike conventional telecoms, extremely marginal and do not count money. So I would humbly hope so, that this part of the AMT business will perform very well, but this argument is more in favor of long-term investment.
Also, possibly, this will attract new investors to the shares, who will think, that the cloud business will grow at AMT faster than towers. For most investors, expectations from cloud companies are extremely high, as indicated by the inflated capitalization of these companies.. So that, possibly, 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% annual. Without these acquisitions, it amounts to 2,02%.
Most investors really want to, to make their money "work", and, taking into account the high stability of the company's business and the aura of the prospects of the telecom topic, I think, that lovers of passive income can be crammed into shares, 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 they invest in REIT for passive income. In any case, the AMT yield is much higher than the average for S&P 500 — 1,26% annual, 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 was bought at exorbitant prices - for $ 10.1 billion - that's 15.78 annual revenue. 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 needs to be repaid within a year. There is not much money in the accounts of the company - 3.277 billion, plus to this it can scrape together about 1.17 billion more - these are counterparties' debts and money, postponed just in case. So the debts will rise even more.
Overall, the company is very lucky, that she could borrow money at low interest for several years, but there is an increase in rates ahead - so that 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 debt servicing can lead to a cut in dividends by a company and a drop in its shares.
Impudent, don't be insolent at all. You shouldn't expect wild growth of 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, can, and high, but the company is not yet able to significantly increase prices, because most of its towers are already leased out and rental prices there will not grow much to 2024. Company, sure, can expand by buying up competitors and increase the rental price already at new facilities, but this will require her to increase her debt burden.
what, if a. The company's business seems to be stable, but any force majeure such as hacker attacks and local disasters can greatly affect its quotes. Basically, this can be said about any company, but, Considering, that AMT has already received a lot of trust from investors, any force majeure can extremely negatively affect 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 yet.
What is the bottom line
With reluctance, we take stocks now by 259,04 $. And then there are two options:
- waiting for growth until 296 $. I think, we will be able to reach this level in the next 14 months;
- We hold the following promotions 15 years, to see, how the company will make the dream of all rentiers come true: will receive rent from hassle-free tenants, which will not spoil the property too much.