- Years of business overvaluation in the stock appear to be catching up to American Tower.
- 5G hype for future growth may only paper over slowing rental contract trends in cell tower technologies elsewhere.
- A clear divergence in technical trading, between rising price and falling momentum this summer, is worrisome for the bullish argument.
Extensive technical evidence suggests sellers are getting the upper hand in American Tower (AMT) shares during August. The largest REIT focused on cell towers and communication sites, with 180,000+ properties, has been a wonder stock the last few years in anticipation of a jump in demand from the new 5G technology for wireless products. I have explained my view for several years on Seeking Alpha that the company’s extreme valuation and near bubble-like investor view of the equity could bring lagging to negative performance over time. My last bearish mention was in October of 2020 here. Guess what? American Tower is now underperforming the S&P 500 index over the past 1-month, 3-month, 6-month and 12-month spans.
The main bearish argument is super-high valuations do not mesh well with slackening growth in revenues and EPS. Seeking Alpha has an “F” ranking currently for American Tower on its August 24, 2020 Value Score.
Accounting book value is all but non-existent. The company holds $25 billion in debt and $37 billion in total liabilities. GAAP earnings are low vs. the equity quote with a P/E of 58x. And, price to FFO is trending well above 30x. The dividend yield is one of the lowest of any REIT investment at 1.8% currently, about the same as the S&P 500 rate of 1.7%.
Price to trailing sales, cash flow and book value have roughly doubled the last five years into the stratosphere on hopes for 5G riches.
Earnings Growth Stalling
The bad news is little room exists to both raise the dividend payout and grow the business beyond its current 10% or less annual projection for 2020-21. Earnings estimates are now being revised lower, believe it or not, by Wall Street analysts. Overenthusiasm is giving way to the math and difficult growth realities for American Tower.
You can see on the below table, bullish Seeking Alpha writer confidence is matched by high Wall Street ratings of the stocks, while the underpinnings of such have been crumbling for months, as measured by the SA generated Quant computer score.
