American Tower's foreign operations lifts revenue amid uncertain U.S. market

American Tower's move to diversify into foreign markets paid dividends in the second quarter. But that wasn't enough to assuage investors' fears about the U.S. tower market.

The major U.S. cell tower company posted quarterly revenue of $1.44 billion, in line with analysts' estimates and up 23 percent year over year. Net income rose 22.4 percent but earnings per share came in at 37 cents, significantly below analysts' estimates of 54 cents per share.

Shares of American Tower dipped roughly 1 percent mid-day Thursday following the earnings report.

"Our company's strong second quarter total property revenue growth of nearly 24 percent was powered by solid U.S. organic tenant billings growth of 6 percent, and more than double that level in our international markets, at approximately 14 percent," American Tower CEO Jim Taiclet said in a press release. Recent acquisitions in Brazil, India and Nigeria significantly contributed to revenues, Taiclet said.

Indeed, American Tower's earnings were buoyed by overseas markets as concerns grow about capex spending by U.S. carriers. American operators are increasingly looking to small cells to densify their networks, leading some analysts and investors to question traditional tower business models.

"Tower investors have been waiting for an upturn in carrier capex; that didn't transpire in Q2," MoffettNathanson analysts wrote in a research note on American Tower's results. "Verizon and T-Mobile maintained their full-year spending outlooks, whereas AT&T's level of investment is trending below its 2016 guidance. Sprint stole the show, however, spending less than $500 million on network-related capex in the quarter, for a mid-single digit level of capital intensity. This really isn't new news for tower investors, but it's not what one wants to hear for a demand-driven model like this one, either."

American Tower has addressed those concerns by moving into Latin America, Europe, Africa and India, reducing its exposure to the U.S. market. That's a sound strategy given the uncertainties regarding carrier spending before they begin to invest heavily in 5G, but it comes with additional risks for investors.

"However, readers of our work will know we're more sanguine about the appeal of international tower assets than most," MoffettNathanson wrote. "This isn't to say the assets are somehow categorically bad, or that American Tower is misallocating capital, but rather that they are demonstrably less attractive than those in the U.S. (to degrees that vary by country) and warrant lower multiples as a consequence. While we still like the shares here, we worry that investors who do not take this into account are investing with a slimmer margin of safety than they may belive."

For more:
- see American Tower's press release

Related articles:
Evercore: 'Carrier vitriol' toward tower companies likely to fade in march to 5G
Huge $86B clearing cost could lead to extended incentive auction
AT&T solicits developers to spur tower competition: MoffettNathanson
T-Mobile's Dave Mayo calls for 'industrialization' of the wireless infrastructure space
Sprint's lowered capex guidance - from $4.5B to $3B - concerns investors, despite $11B in liquidity

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