Should You Trust American Tower's Management Team?

More than anything else, managers determine returns. They set strategy, hire key team members, oversee operations, and cash paychecks. Every move they make either enhances or destroys shareholder capital.

It pays to know who these men and women are, how they're paid, whether they, too, are owners, and how they perform versus competitors in certain key metrics. In this regular column, I'll examine all that and more with the goal of enhancing our understanding of some of the top stocks in Fooldom.

Next up: American Tower (NYSE: AMT). Is the executive team of this wireless infrastructure provider doing all it can to earn you outsized returns?

Foolish facts

Data current as of Feb. 18.

For most Fools, American Tower is an economics play. Third World economic reality says digging up the ground to lay cable or fiber makes no sense. Wireless networks offer the only affordable option for connecting billions in Asia's, Africa's, and South America's emerging economies. Towers are the building blocks for these networks.

Think of them as apartment buildings. Tower operators rent space for antennas owned by carriers. In American Tower's case, the list includes developing-country providers like India's Aircel, Mexico's Telefonica Moviles, and Brazil's Vivo. In the United States, American Tower lists Verizon (NYSE: VZ), AT&T (NYSE: T), Sprint Nextel (NYSE: S), and T-Mobile as customers, a clean sweep of the big four mobile operators. Outsourcing helps these and other carriers preserve capital that would otherwise go to network construction.

"Great industry to be in, with tremendous amount of room for growth. Their profitability is directly tied into cell phone data usage and wireless services providers' needs for cell towers. This demand is going to continue to grow with the popularity of smartphones [and] the rolling out of 4G," wrote Foolish investor bball2693 last month.

It's a fair point. According to Cisco's latest forecast, mobile data traffic will increase 26-fold between now and 2015. That's likely to mean more towers and more antennas per tower, a virtuous upgrade cycle that could lead to outrageous growth for American Tower and its peers.

Management overview

Source: Capital IQ, a division of Standard & Poor's. (Data current as of Feb. 18.)

Capitalizing on that growth will require experience and discipline, two things that American Tower has plenty of on its management team. CEO James Taiclet is a former Air Force officer who's led the company for most of the past decade.

Hal Hess is a finance guy who's also a lawyer with mergers and acquisitions experience, perfect for negotiating international buyouts like November's purchase of up to 1,400 constructed towers and 1,800 under construction and planned ones from South African carrier Cell C.

American Tower has managed mostly double-digit revenue growth over the past decade thanks to moves like this. More recently, an emphasis on efficiency combined with targeted stock buybacks has led to profits growing faster than revenue.

Management analysis versus competitors

Source: Capital IQ, a division of Standard & Poor's. (Data current as of Feb. 18.)
* Return on capital.
** Return on equity.

Two things become clear when I look at this table. First, American Tower is the most efficient tower operator in the business. Second, insiders have largely cashed out.

Should you be concerned with insiders' lack of a big ownership stake? I'd see this as an issue if management was abusing stock options but that hasn't been the case. If anything, Taiclet and his team have proven to be excellent stewards of shareholder capital. Don't expect that to change soon.

Now it's your turn to weigh in. Let us know what you think about American Tower's opportunity here and abroad using the comments box below. You can also rate American Tower in Motley Fool CAPS.