American Tower Earnings: Diversification Beyond U.S. Towers Shows Its Benefits

American Tower AMT provided a similar picture of the current U.S. tower leasing environment as peer Crown Castle last week—activity is slowing, but it is confident that it will continue hitting its leasing growth targets in the next few years with the help of master lease agreements, or MLAs, that have locked in carrier spending commitments. However, American Tower distinguished itself with significant strength across most of its international markets and in its data centers, which collectively account for more than half of the firm’s revenue. Strength in the markets outside U.S. towers led American Tower to raise its 2023 outlook on the top and bottom lines. We are maintaining our $225 fair value estimate and believe the stock remains undervalued.

Second-quarter performance in Africa and Latin America was the main driver of the firm’s higher outlook for 2023 property revenue. Organic tenant billings, which represent same-tower sales, were up 13% year over year in Africa. Colocation and amendment growth in Africa was 7%, as 4G network investment remains high, and inflation-linked escalators were a huge tailwind that helped offset the expected heightened churn. In Latin America, organic tenant billings growth again exceeded 5% despite higher churn this year, and American Tower raised its full-year outlook in the region from 2% to 4% despite the further pickup in churn it expects in the second half.

Organic tenant billings grew 5% in the U.S., consistent with the annual rate management expects over the next five years. Colocation and amendment growth was very strong—exceeding 5%—but, like Crown Castle, American Tower is seeing a slowdown in activity, which most immediately has hit services revenue. Still, the firm said the 5G investment cycle looks similar to what new network generation buildouts have looked like historically, and it emphasized that its MLAs give it confidence in its U.S. growth expectations through 2027.