We've been asking ourselves recently if the market has placed a fair valuation on American Tower. Let's dive into some of the fundamental values of this large-cap Real Estate company to determine if there might be an opportunity here for value-minded investors.
The Market May Be Overvaluing American Tower's Earnings and Assets:
American Tower, one of the largest global REITs, is a leading independent owner, operator and developer of multitenant communications real estate with a portfolio of nearly 226,000 communications sites and a highly interconnected footprint of U. The company belongs to the Real Estate sector, which has an average price to earnings (P/E) ratio of 24.81 and an average price to book (P/B) ratio of 2.24. In contrast, American Tower has a trailing 12 month P/E ratio of 66.6 and a P/B ratio of 16.81.
American Tower's PEG ratio is 4.65, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
Exceptional Profitability Overshadowed by Excessive Leverage:
| 2019-12-31 | 2020-12-31 | 2021-12-31 | 2022-12-31 | |
|---|---|---|---|---|
| Revenue (MM) | $7,580 | $8,042 | $9,357 | $10,711 |
| Operating Margins | 35.5% | 35.9% | 33.5% | 22.0% |
| Net Margins | 24.9% | 21.02% | 27.44% | 16.49% |
| Net Income (MM) | $1,888 | $1,691 | $2,568 | $1,766 |
| Net Interest Expense (MM) | -767 | -754 | -830 | -1,065 |
| Net Interest Expense (MM) | -$767 | -$754 | -$830 | -$1,065 |
| Depreciation & Amort. (MM) | -$1,796 | -$1,871 | -$2,333 | -$3,355 |
| Earnings Per Share | $4.24 | $3.79 | $5.66 | $2.93 |
| EPS Growth | n/a | -10.61% | 49.34% | -48.23% |
| Diluted Shares (MM) | 446 | 446 | 453 | 466 |
| Free Cash Flow (MM) | $2,761 | $2,850 | $3,443 | $1,823 |
| Capital Expenditures (MM) | -$991 | -$1,032 | -$1,377 | -$1,874 |
| Net Current Assets (MM) | -$33,661 | -$39,547 | -$57,089 | -$51,164 |
| Current Ratio | 0.47 | 0.79 | 0.41 | 0.44 |
| Long Term Debt (MM) | $21,127 | $28,498 | $38,686 | $34,156 |
| Net Debt / EBITDA | 5.18 | 6.32 | 7.01 | 6.03 |
American Tower has growing revenues and increasing reinvestment in the business, strong margins with a negative growth trend, and consistent free cash flow. However, the firm suffers from declining EPS growth and a highly leveraged balance sheet.
