UNIVERSITY OF OREGON
INVESTMENT GROUP
November 14th, 2008
Technology
AMERICAN TOWER CORPORATION
HOLD
Stock Data
Price
Symbol/Exchange
Beta
Shares Outstanding
Average Daily Volume
Current Market Cap
Long-Term Debt
Revenues (TTM)
NWC (MRQ)
Valuation (per share)
Target Price
DCF Analysis
Comparables Analysis
Current Price
(as of 11/11/08)
$24.75
AMT
1.22
393.9 million
7,060,000
$11,131.2 million
$4,368.3 million
$1,563.3 million
($35.8 million)
$21.69
$19.38
$34.81
$24.75
BUSINESS OVERVIEW
American Tower Corporation, founded in 1995 as a subsidy of American Radio Systems Corporation, spun off as its own
publicly-traded holding company in 1998 and is listed on the New York Stock Exchange under the ticker symbol AMT. The
Company was incorporated in Delaware and is headquartered in Boston, Massachusetts. AMT presides over its domestic
entities American Towers, Inc. and SpectraSite Communications, LLC and American Tower International, Inc. – and its
subsidies – internationally.
AMT is the leading provider of communication sites designed for broadcast and wireless utilization measured by either
revenues or number of tower sites. American Tower manages, develops, and owns or leases over 20,000 tower locations across
the country in addition to approximately 3,000 towers abroad, mainly in Mexico and Brazil. American Tower operates wireless
Covering Analyst: Michael Abouaf
Email: Analyst: mabouaf@uoregon.edu
The University of Oregon Investment Group (UOIG) is a student run organization whose purpose is strictly educational. Member
students are not certified or licensed to give investment advice or analyze securities, nor do they purport to be. Members of UOIG
may have clerked, interned or held various employment positions with firms held in UOIG’s portfolio. In addition, members of UOIG
may attempt to obtain employment positions with firms held in UOIG’s portfolio.
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communication towers for cell phone carriers, broadcast communication towers for television and radio transmissions, smaller
antenna systems for large populated buildings (casinos, malls, et al.), and certain rooftop and tower sites managed for thirdparty customers. Approximately 84% of AMT’s sites in its portfolio are located on land that the Company does not own.
About 90% of these long-term leases expire in ten years or more, and the Company typically is given the option to purchase
the tower site after the terms of the lease have expired.
American Tower’s main business is their rental and management segment, where it is in charge of long-term leasing and
operating of the antenna space on these communication systems to wireless services and broadcast frequencies. 98% of
AMT’s revenues and 99% of AMT’s operating profits for each of the past three years were derived from the long-term leasing
contracts of these wireless and broadcast towers. The other portions of the Company’s revenues are from the operating of its
network development services segment. This segment processes site acquisitions, zoning and permitting services, and
structural analysis site-work through this segment. Essentially, 2% of the Company’s revenues are derived from the paperwork
and services that enable the Company to earn 98% of its revenues.
AMT does not pay a dividend on its shares of common stocks. The Company instead “retains future earnings, if any, to fund
the development and growth of [their] business (most recent 10-K).” American Tower announced a $1.5 billion dollar share
repurchase program for the twelve months following February of 2007, and the Board of Directors approved a new, one-year
repurchase program in February 2008 of up to $1.5 billion dollars. Since October 2005, the Company has repurchased
approximately 69.3 million shares, valued at $2.7 billion dollars.
BUSINESS AND GROWTH STRATEGIES
There are essentially two ways for a company to grow. One way is through organic growth, the result of an increase in
revenues from expanding to new markets and customer bases. The other way is by making certain business acquisitions, which
help expand a businesses scope of operations immediately. American Tower has shown to be capable of fueling growth
through both of these channels.
First and foremost, American Tower Corporation believes that most of its tower sites have the capacity to upgrade equipment
and add new tenants. This ensures that margins will increase in the future, as capital expenditures remain low as additional
tower sites may not be required, and operating expenses remain relatively fixed as the very same towers are being serviced.
AMT’s leases, which are responsible for about 90% of the total revenues, are structured in ways favorable to the Company.
The long-term nature of the lease agreements – five-to-ten years for domestic sites and ten years for international ones –
provides stability to American Tower’s year-to-year revenues. Lease payments typically increase 3%-5% per year as services are
held constant, meaning that even in spite of AMT or its customer requiring more capital to meet new customer demands,
American Tower still generally increases its real year-over-year revenue growth simply by maintaining its customer base, which
AMT typically is able to do due to the scope and effectiveness of the Company’s services provided coupled with the high costs
to its customers of switching to alternative sites. Customers are offered and typically accept five-year lease extensions at the
conclusion of the original lease contract.
As stated, simply gaining market share on the basis of core competencies is difficult in this industry. The costs are usually too
high and the benefits too small for a wireless provider to change communication sites. Therefore, the most important way for
AMT to grow organically is by meeting the newest and future generations of wireless communication technologies
requirements of its customer base. As wireless carriers upgrade and offer new services, AMT must upgrade its equipment
hosted at the communication sites. To this point, the Company acknowledges, “[Our] ability to lease additional space on our
sites is a function of the rate at which wireless carriers deploy capital to improve and expand their wireless networks (10-K).”
The best way for AMT to grow its revenues is simply by its customer base implementing the newest technologies in the
industry. The success of AMT’s growth is dependent on the success of the wireless carriers it services.
The final way for AMT to expand and grow is through acquisitions. AMT completed its acquisition of SpectraSite, Inc. and its
approximately 7,800 communication sites in late 2005. American Tower believes in the benefits to consolidation among tower
companies, and continues to seek out opportunities to expand via acquisition. In 2007, AMT acquired a structural analysis firm
to better assist the Company’s structural analysis and engineering services provided through its Network Development
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Services segment. Additionally in 2007, the Company purchased 293 towers and 17 in-building distributed antenna systems.
Similar acquisitions were made in 2008, including the Company’s first expansion in to India, where AMT now operates 58
towers.
International revenues made up approximately 13% of the Company’s revenues in 2007, and through three quarters in 2008
the portion of AMT’s revenues made from foreign countries was approximately 15%. American Tower is interested in
expanding in to foreign markets in addition to Mexico, Brazil, and India, and in 2007 hired an executive officer to focus on
international business development. The Company believes that its share of revenues from international markets will increase
in the foreseeable, and AMT is actively looking for expansionary opportunities overseas, specifically in Central and South
America as well as Southeast Asia.
American Tower also operates broadcast communication towers in addition to its portfolio of wireless communication sites.
7% of AMT’s Rental and Management segment revenues is derived from these broadcast towers. The Company has
acknowledged the changing landscape domestically with these certain technologies, and as a result, the likely decline in
revenues derived from operating both tower types. In February of 2009, the federal government and FCC will begin enforcing
previously passed legislation assuring that essentially all broadcast television becomes digital. This change will essentially
eliminate all domestic revenues the Company receives from its analog television broadcast operations. AMT’s broadcast radio
revenues will also be threatened by a potentially increasing presence of satellite radio. Terrestrial radio growth is stagnant
domestically so increased penetration from competitors will have a negative impact on AMT’s revenues.
RECENT NEWS
November 3rd, 2008 – American Tower Corporation Records 3rd Quarter 2008 Financial Results
American Tower continued its strong growth with solid third-quarter financial results that surpassed Company and Wall Street
expectations in EPS and revenues. In addition to strong earnings and growth projections for the rest of 2008 and 2009, AMT
CEO Jim Taiclet issued a statement helping to ease concerns with the Compnay’s capital position and to ensure the
capabilities of the business to expand in the near future. He said, “Our significant free cash flow generation, relatively low
financial leverage and absence of near term refinancing requirements make American Tower the most resilient and financially
flexible company in the tower industry. Our solid financial position, which includes over $600 million of liquidity, and very
stable contractual revenue base provide a foundation for us to pursue exciting growth opportunities.” Shares of AMT were
trading 6% higher following their earnings release on Monday, November 3rd.
September 17th, 2008 – WindPole Signs Deal For National Wind Farm Study
The wind-energy company WindPole Ventures, LLC. signed a deal with American Tower to use AMT’s older and unused
towers for wind-monitoring. The towers were designed for microwave radio transmissions to be used by the federal
government for communication in the wake of an emergency. However, they are no longer used and are well positioned to
harness wind as a source of energy. WindPole plans on conducting an 18-month feasibility study to determine how many
towers can be used and how successful and efficient they would be. The idea of converting AMT-owned broadcast towers for
other uses represents an interesting extra channel of revenue and higher value of assets that the Company can benefit from.
November 6th, 2008 – AT&T To Buy Wi-Fi Firm Wayport for $275 Million
Many new cellular devices have taken advantage of the huge penetration of wireless Internet. After the acquisition, Wayport
will provide an additional 80,000 hotspots globally for AT&T. New and existing technologies pose a threat to American
Tower and its steady revenue streams. AMT provides no service for wireless carriers when their products are running on a
wireless Internet network. An increase in Wi-Fi-supported technologies represents a significant threat to the growth of
American Tower.
November 5th, 2008 – Nationwide 4G WiMax Gets The Green Light
After 18 months of evaluation from the FCC, the Spring Nextel and Clearwire merger was finally approved. The merger
positions Clearwire to fully roll out its 4G WiMax network, one of the newer technological standards that can provide fast
speeds to mobile phones over hundreds of miles. This type of technological advancement represents a significant opportunity
for American Tower, as companies introducing WiMax capabilities to their phone will be paying AMT more money to
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implement the service. Additionally, the Company benefits when one service provider – in this case, Sprint Nextel – announce
plans to upgrade their services because the competition is at a competitive disadvantage if it does not upgrade as well.
INDUSTRY
There exists a high level of competition between the few communication tower site companies. Apart from pure-play
competitors in the industry, tower sites compete with water towers, utility towers, building space, and owners of noncommunication tower sites for prime location. One major factor for revenue derived from each tower is the size and location
of the tower itself, and as a result non-competitors can potentially lower the communication tower companies’ revenues and
competitive advantages.
Trends in the wireless communications industry appear positive for network infrastructure providers. Technology is becoming
more available and more affordable worldwide, and thus more people are subscribing to wireless communication services.
Additionally, current wireless services are constantly being upgraded and improved, changes that demand higher capabilities to
be provided from tower operators like AMT. Therefore, growth outlooks internationally and domestically appear to be very
strong. As long as competition exists, wireless service providers will be forced to improve their network capacity and
infrastructure – to the benefit of tower site providers. American Tower’s success is entirely dependent on the wireless
communication industry both domestically and abroad. Cell phone penetration and bandwidth usage around the world is
expected to grow in to the indefinite future, which benefits American Tower and the Communication Services industry as a
whole.
American Tower and its primary competitors believe that international growth in key markets – specifically in Southeast Asia
and parts of South America – will become an increasingly significant part of the Company’s success. While growth outlooks
domestically appear strong – 3G and 4G/WiMax deployment is still in its infancy stage – internationally, they look even
stronger.
The following statistics are from American Tower Corporation’s most recent 10-K filings.
•
•
•
From December 2003 to June 2007 in the United States alone, the number of wireless service subscribers increased by
approximately 84.7 million subscriptions. This represents a 53% increase in total subscriptions and brought the total
domestic market penetration up to about 80%. Wireless minutes used, considered an indicator of demand for wireless
services, increased 31% year-over-year for a total of 2.1 trillion minutes used.
From December 2003 to December 2007 in Mexico, the number of wireless service subscribers increased by
approximately 38.2 million subscriptions. This represents a 127% increase in total subscriptions and brought the total
Mexican market penetration up to about 64%.
From December 2003 to December 2007 in Brazil, the number of wireless service subscribers increased by
approximately 74.5 million subscriptions. This represents a 160% increase in total subscriptions and brought the total
Brazilian market penetration up to about 64%.
American Tower recently expanded its services to India, where they now operate just short of 60 towers. India currently has
the fastest growing subscriber rate of any country, with approximately eight million new subscribers a month. India alone has
246 million current subscribers, approximately 154 million of which came in 2007 alone.
Tower site operators share similar business models. The pure-play competitors American Tower Corporation competes with
also mainly lease instead of own their tower sites. Additionally, the companies share many of the same customers, a base which
is highly concentrated. As of both companies’ most recent 10-K’s, Sprint Nextel accounts for roughly 20% of AMT’s revenues
and about 31% of SBA Communications Corporation, AMT’s main competitor. Success and growth is strongly dependent on
the deployment of increased network capabilities and capacities of the wireless carrier providers. Likewise, risk is shared
throughout the industry if wireless carriers are struggling and therefore incapable of investing in the needed infrastructure
upgrades required.
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S.W.O.T. ANALYSIS
Strengths
-Low costs of operating. Operating expenses and capital expenditures are relatively fixed when a communication site is
already built, and thus growing capacity of the towers via adding additional wireless tenants leads to high operating profits and
margins.
-Favorable lease structuring. AMT generally operates through long-term leases, which provide the company stability in their
revenue base as well as typical lease payment increases annually. Additionally, there exists few suitable substitutes for most of
AMT’s customer base, and therefore its renewal rate is very high.
-Location of towers. Approximately 91% of AMT’s tower coverage provides wireless and broadcast communication to the
United States’ top 100 markets or core areas such as high-traffic interstates. The Company is well positioned to handle
increased network activity in the country’s most populated areas.
Weaknesses
-Limited market access worldwide. Currently, 91% of AMT’s revenues are derived from the markets in the United States,
Mexico, and Brazil. This selective access to just a small region of the world limits the Company’s growth projections relative to
that of the entire wireless and broadcast communications industry.
-High concentration of revenues from small number of entities. A large proportion of the Company’s revenues derive
from a small amount of customers. 70% of AMT’s 2007 revenues were from six customers. AT&T Mobility, Sprint Nextel,
and Verizon Wireless accounted for 21%, 20%, and 11%, respectively.
-Limited, competitive space for expansion. American Tower competes with not just other wireless communication and
broadcast tower providers, but also with utility towers, water towers, and other alternative structures for site location. Site
location is characterized by N.I.M.B.Y., as in “not in my backyard.” Suitable sites for towers that do not impede on the
citizenry of the location are limited and highly competitive.
Opportunities
-Ability to add capacity to towers to meet increased demand. AMT believes that most of their operating towers have the
ability to add capacity, both through increased tenants as well as equipment from existing customers. Because the company’s
business costs are so highly fixed, most of these additional revenues will flow mainly to operating profit. As a result, AMT’s
main market, the United States, is not considered mature but instead is consistently growing.
-International growth. American Tower operates in Mexico, Brazil, and most recently India. Wireless service penetration is
not as developed in these countries as the United States, so the opportunity exists to not only add capacity but to also add a lot
of new customers servicing generally an incredibly large customer base.
-Consolidation of industry. AMT continues to be involved in the consolidation of the wireless and broadcast towers
industry. The Company purchased SpectraSite, Inc. in 2005 and since then has operated their approximately 8,000 towers. The
Company is interested in acquisitions that better position the company to provide quicker and more efficient service to its
customers, and believes it can effectively and efficiently incorporate any potential acquisitions in to its own business.
Threats
-Towers subject to legal requirements. Both the Federal Communications Commission (FCC) and the Federal Aviation
Administration (FAA) regulate tower construction and operation. AMT’s towers are required to meet all federal regulatory
requirements and obtain permits for legal use. Unexpected changes to regulatory laws regarding broadcast communication,
zoning permits, and environmental concerns may negatively affect the Company’s current or planned tower sites.
-Change in wireless service providers’ ownership, strategy. Wireless carriers involved in network sharing and roaming
effectively eliminate certain revenue channels for American Tower. Additionally, consolidation in the wireless carrier industry
results in fewer customers and thus fewer revenues sources. Finally, poor financial results for wireless carriers may inhibit their
ability to recapitalize and provide the needed technological improvements to their customers, improvements that provide
AMT revenues. Wireless carriers may also find positive value from owning and operating their own communication towers.
Carriers have in the past outsourced their infrastructure needs for two main reasons. One, the initial capital demand to
establish a sound national or even regional network is incredibly high. AMT didn’t generate its first positive earnings until
almost a decade of operating, and AMT’s competitors are still struggling to turn profits consistently. Two, a distinct
competitive advantage for the carriers stems from their ability to be the first to the market with new technologies. A carrier
with the newest, fastest network and best quality service may attract customers away from its competitors. This is most easily
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accomplished through the use of tower operators, but a carrier willing to make the necessary capital expenditures to own and
operate its own towers would certainly hurt American Tower.
-Substantial indebtedness may limit ability to properly expand. While American Tower believes it is in a secure and
strong financial situation, the Company does currently have a significant amount of long-term debt. The ability of the
Company to then properly raise capital for affordable expansion opportunities could then be threatened; especially as credit
markets continue to be unstable.
PORTER’S 5 FORCES ANALYSIS
Supplier Power – Low, Increasing
The Company made no mention of the threat of shortages of technological providers to better their tower equipment and
service their customers. Tower owners should be able to cultivate more fees from AMT and its competitors leases as premier
tower sites become more demanded. Therefore, supplier power, specifically the power of those who own the tower sites, will
be increasing.
Barriers to Entry – High, Increasing
One major source of a company’s competitive advantage in the broadcast tower industry is the location of the towers and as a
result the range those facilities can reach. These sites are fairly limited and therefore acquiring new ones is both difficult and
costly. High government regulations also make this industry difficult to enter.
Buyer Power – Moderate, Stable
AMT and other tower providers do face a significant threat from their buyers because of the small number of actual
customers. AMT’s revenues, like its competitors, are highly concentrated. However, this high concentration of revenue per
customer is somewhat balanced out by the high switching costs accompanied with changing from one tower company to
another.
Threat of Substitutes – Moderate, Stable
While competitors often serve the same markets as AMT does, it is costly to change tower providers and therefore the threat
of substitutes is reduced from a high level of threat to a more moderate threat. From AMT’s most recent 10-K, “repositioning
a site in a carrier’s network is expensive and may adversely affect network quality.”
Degree of Rivalry – Moderate, Potentially Increasing
There are few direct competitors that serve the same markets. While the intensity of rivalry in the industry seems roughly
standard to any industry, the number of suitable tower sites is decreasing relative to the amount of tower bandwidth needed.
As a result, the industry should become more competitive in the medium run as the businesses clamor for the best tower sites.
COMPARABLES ANALYSIS
The Companies I used as comparables were American Tower’s main pure-play competitors, SBA Communications
Corporation and Crown Castle International Corp. The industry AMT operates in has just a couple national and international
competitors and dozens if not hundreds of regional, smaller, insufficient comparable companies. I chose just SBAC and CCI
because they were the only companies that met the requirements I desired in the comparables.
The certain factors I desired in the comparable companies were:
• Similar scope of operations. AMT, SBAC, and CCI operate in almost every state in the country. Additionally,
American Tower and Crown Castle operate internationally, and SBA has announced intentions to expand its
operations. I believe the expanded operation present in all these companies provides a more stable and constant level
of risk.
• Similar business structure. I neglected to use companies in the similar or related industry because while revenues
may be correlated, business structure is not. SBAC, AMT, and CCI all have extremely high depreciation expenses
relative to their incomes. This structuring is important to derive value from the multiples I used. Additionally, the
higher margins and decreasing marginal costs in this industry were important in my comparables selection.
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•
Overall ability of market to price equity. Other competitive companies either were too regionalized, too minimally
traded, or I simply did not believe they could be used to properly measure how the market prices this industry.
SBA Communications Corporation (SBAC) – 50%
www.sbasite.com | Boca Raton, Florida
“We are a leading independent owner and operator of wireless communications towers in 47 of the 48 contiguous United
States, Puerto Rico, and the U.S. Virgin Islands. Our principal business line is our site leasing business, which contributed
95.5% of our segment operating profit for the year ended December 31, 2007. In our site leasing business, we lease antenna
space to wireless service providers on towers and other structures that we own, manage or lease from others. The towers that
we own have been constructed by us at the request of a wireless service provider, constructed based on our own initiative or
acquired. As of December 31, 2007, we owned 6,220 towers, the substantial majority of which have been built by us or built
by other tower owners or operators who, like us, have built such towers to lease space to wireless service providers.”
Crown Castle International (CCI) – 50%
www.crowncastle.com | Houston, Texas
“We own, operate and lease towers and other communication structures, including certain rooftop installations (collectively,
“towers”), for wireless communications. Our core business is renting space on our towers via long-term contracts in various
forms, including license, sublease and lease agreements. Generally, our towers can accommodate multiple customers (“colocation”) for antennas and other equipment necessary for the transmission of wireless signals for mobile telephones and other
devices. Revenues derived from this site rental business represented 93% of our 2007 consolidated revenues. We owned,
leased or managed approximately 23,800 towers. Our customers include many of the world’s major wireless communications
companies. In the U.S., Sprint Nextel, AT&T, Verizon Wireless and T-Mobile accounted for 72% and 68% of our 2007
CCUSA and consolidated revenues, respectively. In Australia, our customers include Optus, Vodafone, Telstra and
Hutchison.”
Both SBA Communications and Crown Castle International are AMT’s strongest and most competitive rivals in the industry.
They identically capture the expected growth in the industry both domestically and internationally, and share similar business
models and relatively similar capital structuring. The companies have expressed interest in consolidation in the industry and
have all previously and recently acquired small portfolios of towers. I don’t feel like one company represents the industry
better then the other so I weighted both companies at 50%.
The metrics I used were EV/Revenues, EV/EBITDA, and EV/OCF. EV/Revenues is a fairly standard metric that I used to
show how the companies could derive revenues from their business models and assets. EV/EBITDA shows a measure of
profitability that these companies can earn, not including the high depreciation costs that these companies all share. Finally, I
used EV/Operating Cash Flows because I wanted to show how the companies could earn cash through their business
operations. The better a company could earn cash, generally the more able they would be to make the proper capital
expenditures and potential acquisitions that could become available in time. I weighted all of these metrics equally, which gave
me an implied price of $29.71.
DISCOUNTED CASH FLOW ANALYSIS
I used the percent of revenues method for all line items. Additionally, I used the Company’s estimates for the fourth quarter of
2008 and the full year of 2009 when provided. Explanations of some additional line items are below.
Revenues
I did not break down revenues by segment because the Company’s revenues are predominately determined by one of its two
segments. The Company expects its Network Development Services segment revenue to stay constant as a minimally
important revenue source for the Company. I qualitatively used information on international growth, domestic recapitalization
of assets, and expectations of the wireless industry both domestically and abroad to arrive at certain revenue growth rates. I
did not factor in fluctuations in gains and losses of foreign currency in to revenues like the Company’s line items must, as I
assume that the net of foreign currency transactions will be zero in the long run.
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I project strong growth in to the near future due to increased expansion internationally – specifically in India – as well as an
increase in domestic investment by wireless carriers. The Company, in its full year 2009 revenue projections, made special
mention that it had excluded “any potential benefits from a widespread WiMAX network build out.” I am assuming that the
4G investments and those of similar nature occur in the near future.
Gross Profit
As previously stated, margins increase for the Company as additional tenants and services are added to existing towers.
Essentially, most domestic revenue growth will be of this variety, thereby assuring that margins on domestic earnings increase.
These margin increases drive the increase in gross profit throughout the DCF. The main driver of AMT’s cost of revenues is
its ground rent expense. This cost has slowly increased over time, but should not increase at a rate higher than revenue growth
from the same towers. Essentially, the 3-5% annual increase in revenues from leases should continue to be higher than the
percentage increase in rent per year.
Depreciation Expense
The Company’s depreciation of its equipment and of any owned properties should continue to digress in to the future. High
amounts of depreciation in years 2006 and 2007 were mainly as a result of the final retiring of SpectraSite, Inc. acquired assets.
Depreciation as a percentage of revenues has decreased for seven consecutive years simply because the Company is deriving
revenue growth from a fixed number of depreciating assets. AMT will continue to see decreased depreciation as their business
model essentially ensures that their revenue growth will outpace their asset accumulation and therefore depreciation expense.
The Company depreciates its towers and related components at a rate currently quicker than the entirety of its long-term lease
of the tower sites. An independent group is currently reviewing the useful life of AMT’s assets, and I expect depreciation
expense as a result to further decrease after the advisory board concludes its study.
Tax Rate
AMT has had inconsistent tax rates due to previous losses on Company operations, stock option considerations, foreign
currency fluctuations, conversion of debt, and federal, state, and international taxes. Taxes for the last two years were 60% and
40%, respectively, and the year before they were just 3%. I project taxes to decrease slightly over the DCF due to the increased
revenues coming from international business operations, where taxes are generally lower.
Net Working Capital
Current Assets have been lowered as a result of recent purchases of common stock, purchases of outstanding debt, and
acquisitions made in part with cash. The main account in current assets, as AMT does not have inventories, is cash and shortterm investments as well as accounts receivables. I project American Tower to replenish their cash accounts before the large
portion of their outstanding debt comes due in 2012. Additionally, I expect the Company’s accounts receivables to increase as
a percentage of revenues due to the forecasted climate of the businesses AMT derives revenues from. Domestically, some
wireless carriers are currently struggling with earnings and may be forced to pay AMT on account. Additionally, I project for
higher capital expenditures from these carriers in the near future, as the next and newest generation of technologies will be
implemented. These capital upgrades will be expensive; thereby increasing AMT’s receivables as the carriers may not have the
money on hand to immediately pay for their services. Current Liabilities should stay relatively consistent as a portion of
revenues. The two main accounts in current liabilities are accounts payable and unearned revenues. AMT through its
operations generates high amounts of cash so the Company should be able to pay its bills. Unearned revenues are revenues
earned via the Company’s long-term leases that were simply paid either partially or fully in advance. I expect the Company’s
revenues from its current customers to increase, and as a result its unearned revenues to increase, but not as a percentage of
revenues as a whole.
Capital Expenditures
I project AMT’s capital spending to increase slowly in the coming years as it and its customers gradually roll out the next
generation of wireless technologies. Tower sites will be upgraded with the newer technologies, requiring American Tower to
invest in new equipment. Additionally, the Company will be further expanding its operations in to India as well as in to South
America, and increasing presence in these markets will require additional capital spending.
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Beta
American Tower grew its business by about 40% with its 2005 acquisition of SpectraSite. Therefore, I felt that regressing the
Company’s returns over a period before 2005 failed to capture its new business. I conducted both a three-year monthly
regression and a three-year weekly one. The monthly regression gave me a beta of just 0.97, which I do not believe totally
encompasses the business risks of AMT. The weekly regression derived a beta of 1.22, which I used in my evaluation to find
an implied price.
Cost of Debt
I used a cost of debt of 7.25%. Moody rates American Tower’s bonds as a strong Ba1, just under investment grade quality. I
used 7.25% as I took in to account the Company’s most recent borrowing rates as well as the current market conditions.
RECOMMENDATION
I weighted my comparables analysis 15% and my discounted cash flow 85% to find an implied price of $21.69. With a current
share price of $24.75, my implied price is overvalued by approximately 12%. I do not have confidence that such a limited
comparable analysis can fully show how American Tower is valued, so I weighed the implied price derived from the
comparable analysis at just 15%. While I am encouraged by the growth projections and overall business model of American
Tower, I believe the Company is overvalued as a result of its capital structuring and reliance on potentially struggling wireless
carriers. Therefore, I recommend a HOLD for all UOIG portfolios based on my qualitative and quantitative analysis of
American Tower Corporation.
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UNIVERSITY OF OREGON
INVESTMENT GROUP
November 14th, 2008
Technology
APPENDIX 1 – COMPARABLES ANALYSIS
SBA
Crown Castle
Communicatiions
International
(SBAC)
Corporation (CCI)
Weight
50%
50%
In thousands of dollars, except per share data and number of tower sites
Current Price
24.75
14.87
13.92
Price (52 Weeks)
22.34 - 46.20
11.28 - 38.50
12.10 - 43.24
Shares Outstanding
396693.636
116589.586
288697.316
Average Daily Volume
7.06 million
3.93 million
4.34 million
Beta
1.22
2.02
1.69
Market Cap
9,818,167.49
1,733,687.14
4,018,666.64
Long-Term Debt
4,368,321.00
2,821,948.00
5,921,846.00
Enterprise Value
14,186,488.49
4,555,635.14
9,940,512.64
NWC (mrq)
-35,820.00
413,619.00
125,268.00
Revenues (ttm)
1,563,290.00
449,430.00
1,509,640.00
EBITDA (ttm)
985,250.00
237,405.00
639,432.00
OCF (ttm)
700,176.81
233,039.00
791,272.40
Towers
23000
10720
23800
American Tower
Corporation (AMT)
Valuation Multiples
EV/Revenues
EV/EBITDA
EV/OCF
EV/Towers
9.07
14.40
20.26
616.80
10.14
19.19
19.55
424.97
6.58
15.55
12.56
417.67
100%
$14.40
13.62 - 40.87
202643.451
4.135 million
1.855
$2,876,176.89
$4,371,897.00
$7,248,073.89
$269,443.50
$979,535.00
$438,418.50
$512,155.70
17260
8.36
17.37
16.06
421.32
Impled Price
Current Price
Valuation
Implied
Value
$32.95
$43.14
$28.34
$24.43
34.81
24.75
40.63%
Multiple
Weights
33.33%
33.33%
33.33%
0.00%
Covering Analyst: Michael Abouaf
Email: Analyst: mabouaf@uoregon.edu
The University of Oregon Investment Group (UOIG) is a student run organization whose purpose is strictly educational. Member students are not certified or licensed to give
investment advice or analyze securities, nor do they purport to be. Members of UOIG may have clerked, interned or held various employment positions with firms held in UOIG’s
portfolio. In addition, members of UOIG may attempt to obtain employment positions with firms held in UOIG’s portfolio.
American Tower Corporation
university of oregon investment group
http://uoig.uoregon.edu
APPENDIX 2 – DISCOUNTED CASH FLOWS ANALYSIS
In thousands of dollars
2006
2007 2008 Q123A
Revenues
$1,317,385.00 $1,456,594.00 $1,185,180.00
% Growth
39.44%
10.57%
Cost of Revenues
$343,537.00 $359,622.00 $291,289.00
% of Revenue
26.08%
24.69%
24.58%
Gross Profit
$973,848.00 $1,096,972.00 $893,891.00
Gross Margin
73.92%
75.31%
75.42%
SG&A
$159,324.00 $186,483.00 $135,412.00
% of Revenue
12.09%
12.80%
11.43%
Depreciation
$528,051.00 $522,928.00 $301,158.00
% of Revenue
40.08%
35.90%
25.41%
Total Operating Expense
$689,947.00 $718,609.00 $439,878.00
% of Revenue
52.37%
49.33%
37.11%
EBIT
$283,901.00 $378,363.00 $454,013.00
% of Revenue
21.55%
25.98%
38.31%
Interest Income
$23,210.00
$25,055.00
$13,670.00
% of Revenue
1.76%
1.72%
1.15%
Interest Expense
($215,643.00) ($235,824.00) ($191,568.00)
% of Revenue
-16.37%
-16.19%
-16.16%
Other Incomes (Expenses)
($20,604.00) ($14,754.00)
($2,240.00)
% of Revenue
-1.56%
-1.01%
-0.19%
Income Before Taxes
$70,864.00 $152,840.00 $273,875.00
% of Revenue
5.38%
10.49%
23.11%
Tax Expense
$41,738.90
$59,760.44 $120,231.13
% of Revenue
3.17%
4.10%
10.14%
Effective Tax Rate
58.90%
39.10%
43.90%
Net Income
$29,125.10
$93,079.56 $153,643.88
Net Margin
2.21%
6.39%
12.96%
Add back: Dep./Amort.
$528,051.00 $522,928.00 $301,158.00
Add back: Interest Expense*(1-Tax Rate)
$88,629.27 $143,616.82 $107,469.65
% of Revenue
6.73%
9.86%
9.07%
OCF
$645,805.38 $759,624.38 $562,271.52
% of Revenue
49.02%
52.15%
47.44%
Current Assets
$486,022.00 $245,674.00 $273,683.00
% of Revenue
36.89%
16.87%
Current Liabilities
$569,629.00 $317,378.00 $309,503.00
% of Revenue
43.24%
21.79%
($83,607.00) ($71,704.00) ($35,820.00)
Net Working Capital
-6.35%
-4.92%
-3.02%
% of Revenue
Change in NWC
$11,903.00
Capital Expenditures
$141,435.00 $198,343.00 $197,827.00
% of Revenue
10.74%
13.62%
16.69%
FCF
$504,370.38 $549,378.38 $364,444.52
PV of FCF
2008 Q4E
2008
2009
2010
2011
2012
0.25
1.25
2.25
3.25
4.25
$407,320.00 $1,592,500.00 $1,695,250.00 $1,856,298.75 $2,079,054.60 $2,380,517.52
9.33%
6.45%
9.50%
12.00%
14.50%
$85,211.00 $376,500.00 $390,250.00 $426,948.71
$457,392.01
$523,713.85
20.92%
23.64%
23.02%
23.00%
22.00%
22.00%
$322,109.00 $1,216,000.00 $1,305,000.00 $1,429,350.04 $1,621,662.59 $1,856,803.66
79.08%
76.36%
76.98%
77.00%
78.00%
78.00%
$47,725.50 $183,137.50 $194,953.75 $218,115.10
$244,288.92
$279,710.81
11.72%
11.50%
11.50%
11.75%
11.75%
11.75%
$106,342.00 $407,500.00 $356,002.50 $334,133.78
$374,229.83
$380,882.80
26.11%
25.59%
21.00%
18.00%
18.00%
16.00%
$155,218.50 $595,096.50 $552,651.50 $554,105.18
$620,597.80
$662,974.13
38.11%
37.37%
32.60%
29.85%
29.85%
27.85%
$166,890.50 $620,903.50 $752,348.50 $875,244.86 $1,001,064.79 $1,193,829.53
40.97%
38.99%
44.38%
47.15%
48.15%
50.15%
$5,440.00
$19,110.00
$21,190.63
$24,131.88
$28,067.24
$33,327.25
1.34%
1.20%
1.25%
1.30%
1.35%
1.40%
($63,932.00) ($255,500.00) ($271,240.00) ($297,007.80) ($322,253.46) ($368,980.22)
-15.70%
-16.04%
-16.00%
-16.00%
-15.50%
-15.50%
($397.50)
($2,637.50)
($1,695.25)
($1,856.30) ($41,581.09)
($47,610.35)
-0.10%
-0.17%
-0.10%
-0.10%
-2.00%
-2.00%
$108,001.00 $381,876.00 $500,603.88 $600,512.65
$665,297.47
$810,566.21
26.52%
23.98%
29.53%
32.35%
32.00%
34.05%
$47,412.44 $167,643.56 $200,241.55 $234,199.93
$256,139.53
$312,067.99
11.64%
10.53%
11.81%
12.62%
12.32%
13.11%
43.90%
43.90%
40.00%
39.00%
38.50%
38.50%
$60,588.56 $214,232.44 $300,362.33 $366,312.71
$409,157.95
$498,498.22
14.87%
13.45%
17.72%
19.73%
19.68%
20.94%
$106,342.00 $407,500.00 $356,002.50 $334,133.78
$374,229.83
$380,882.80
$35,865.85 $143,335.50 $162,744.00 $181,174.76
$198,185.88
$226,922.83
8.81%
9.00%
9.60%
9.76%
9.53%
9.53%
$202,796.41 $765,067.94 $819,108.83 $881,621.25
$981,573.65 $1,106,303.86
49.79%
48.04%
48.32%
47.49%
47.21%
46.47%
$315,000.00 $315,000.00 $406,860.00 $464,074.69
$540,554.20
$499,908.68
19.78%
24.00%
25.00%
26.00%
21.00%
$311,303.00 $311,303.00 $339,050.00 $371,259.75
$415,810.92
$476,103.50
19.55%
20.00%
20.00%
20.00%
20.00%
$3,697.00
$3,697.00
$67,810.00
$92,814.94
$124,743.28
$23,805.18
0.91%
0.23%
4.00%
5.00%
6.00%
1.00%
$75,401.00
$75,401.00
$64,113.00
$25,004.94
$31,928.34 ($100,938.10)
$380,882.80
$42,173.00 $240,000.00 $215,000.00 $278,444.81
$332,648.74
10.35%
15.07%
12.68%
15.00%
16.00%
16.00%
$85,222.41 $449,666.94 $539,995.83 $578,171.50
$616,996.58
$826,359.16
$83,251.89
$480,387.51 $468,402.30
$455,204.08
$555,204.88
2013
5.25
$2,689,984.79
13.00%
$591,796.65
22.00%
$2,098,188.14
78.00%
$316,073.21
11.75%
$430,397.57
16.00%
$749,160.77
27.85%
$1,349,027.37
50.15%
$39,004.78
1.45%
($322,798.18)
-12.00%
($2,689.98)
-0.10%
$1,062,543.99
39.50%
$409,079.44
15.21%
38.50%
$653,464.56
24.29%
$430,397.57
$198,520.88
7.38%
$1,282,383.00
47.67%
$564,896.81
21.00%
$537,996.96
20.00%
$26,899.85
1.00%
$3,094.67
$430,397.57
16.00%
$848,890.76
$519,394.42
2014
6.25
$2,958,983.27
10.00%
$621,386.49
21.00%
$2,337,596.79
79.00%
$347,680.53
11.75%
$414,257.66
14.00%
$764,897.18
25.85%
$1,572,699.61
53.15%
$44,384.75
1.50%
($355,077.99)
-12.00%
($2,958.98)
-0.10%
$1,259,047.38
42.55%
$484,733.24
16.38%
38.50%
$774,314.14
26.17%
$414,257.66
$218,372.97
7.38%
$1,406,944.76
47.55%
$621,386.49
21.00%
$591,796.65
20.00%
$29,589.83
1.00%
$2,689.98
$443,847.49
15.00%
$960,407.29
$535,133.28
2015
7.25
$3,180,907.02
7.50%
$667,990.47
21.00%
$2,512,916.55
79.00%
$373,756.57
11.75%
$445,326.98
14.00%
$822,264.46
25.85%
$1,690,652.08
53.15%
$47,713.61
1.50%
($254,472.56)
-8.00%
($3,180.91)
-0.10%
$1,480,712.22
46.55%
$570,074.20
17.92%
38.50%
$910,638.01
28.63%
$445,326.98
$156,500.63
4.92%
$1,512,465.62
47.55%
$667,990.47
21.00%
$636,181.40
20.00%
$31,809.07
1.00%
$2,219.24
$477,136.05
15.00%
$1,033,110.33
$524,220.81
2016
8.25
$3,308,143.30
4.00%
$694,710.09
21.00%
$2,613,433.21
79.00%
$388,706.84
11.75%
$430,058.63
13.00%
$822,073.61
24.85%
$1,791,359.60
54.15%
$49,622.15
1.50%
($264,651.46)
-8.00%
($3,308.14)
-0.10%
$1,573,022.14
47.55%
$605,613.52
18.31%
38.50%
$967,408.62
29.24%
$430,058.63
$162,760.65
4.92%
$1,560,227.89
47.16%
$694,710.09
21.00%
$661,628.66
20.00%
$33,081.43
1.00%
$1,272.36
$496,221.49
15.00%
$1,062,734.04
$491,081.06
11
American Tower Corporation
university of oregon investment group
http://uoig.uoregon.edu
APPENDIX 3 – DISCOUNTED CASH FLOWS ANALYSIS ASSUMPTIONS
Tax Rate
Risk Free Rate
Risk Premium
Beta
Cost of Equity (CAPM)
% of Equity
Cost of Debt
% of Debt
WACC
39%
3.69%
7%
1.22
12.23%
69.06%
7.15%
30.94%
9.81%
Growth Rate
PV Sum of FCFs
Terminal Value
PV of Terminal Value
Firm Value
Long-Term Debt
Equity Value
Shares Outstanding
Implied Share Price
Current Share Price
Valuation
3.25%
4,112,280.22
17,040,599.10
7,874,327.19
11,986,607.41
4,368,321.00
7,618,286.41
393,942.01
19.34
24.75
-21.86%
APPENDIX 4 – BETA SENSITIVITY ANALYSIS
Beta
0.992
1.068
1.144
1.22
1.296
1.372
1.448
Beta Sensitivity Analysis
Standard
Deviation
Implied Price
(3 s.d.)
$25.97
(2 s.d.)
$23.48
(1 s.d.)
$21.29
0.076
$19.34
1 s.d.
$17.60
2 s.d.
$16.04
3 s.d.
$14.63
Valuation
4.94%
-5.13%
-14.00%
-21.86%
28.89%
-35.19%
-40.89%
APPENDIX 6 – SOURCES
•
•
•
American Tower 10-K
American Tower 10-Q
Comparable Analysis Companies’ 10-K,
10-Q
•
•
•
•
American Tower 2008 3Q Conference
Call
Americantower.com
Crowncastle.com
Sbasite.com
•
•
•
•
•
Yahoo! Finance
Google Finance
IBIS World
Morningstar
Unstrung.com
12
UNIVERSITY OF OREGON
INVESTMENT GROUP
November 14th, 2008
Technology
Covering Analyst: Michael Abouaf
Email: Analyst: mabouaf@uoregon.edu
The University of Oregon Investment Group (UOIG) is a student run organization whose purpose is strictly educational. Member students are not certified or licensed to give
investment advice or analyze securities, nor do they purport to be. Members of UOIG may have clerked, interned or held various employment positions with firms held in UOIG’s
portfolio. In addition, members of UOIG may attempt to obtain employment positions with firms held in UOIG’s portfolio.