American Tower Scales New Heights

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Leading telecommunications provider American Tower (NYSE: AMT  ) reported yet another period of solid growth when it posted a 16% jump in its quarterly net income that beat Street estimates. Investors jumped for joy, sending shares up some 6%.

Let's take a detailed look at the reasons for this robust growth and its prospects for the rest of the year.

Into the numbers
Revenues for the quarter surged 27% to $597.2 million from $469.9 million a year ago. A rise in mobile broadband usage and the expansion of its operations worldwide were the driving factors behind the growth.

Operating income rose to $225.8 million from $188.7 million, a growth of 19.6%. Selling, general, and administration expenses went up 35%, including an $11.7 million payout to employees through stock-based compensation.

Cash matters
Cash from operations increased 5% to $275.5 million. The company has been spending on acquiring land for towers, improving equipment, and constructing more cell sites. Consequently, unlevered free cash flow has dropped to $19.5 million, down by almost 89% from the previous year.

Exploring new horizons
The company spent $275.2 million in the quarter on acquisitions. It has also moved into several developing markets to strengthen its tower business. American Tower's revenues are expected to rise considerably once the towers that it has acquired in these areas become operational.

Industry on a roll
American Tower's closest rival, Crown Castle (NYSE: CCI  ) , had reported a much better profit compared to the previous year and raised guidance when it last stated earnings. With the industry looking up and more customers being added each day, American Tower should dominate the market that it already leads.

Foolish takeaway
The number of cell phone users is rising, and hence more and more customers are being added by carriers in the U.S. and abroad. This, in turn, should push up revenues of tower companies. As the global leader in towers, American Tower is expected to lead the race. With both the industry and the company going strong, I think there is no harm in having the stock in your portfolio.

Fool contributor Harsh Chauhan doesn't own any shares in the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of American Tower. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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  • Report this Comment On September 09, 2011, at 7:12 PM, Hawmps wrote:

    Another plausible explanation for a "surge" in revenues not mentioned is lease renewals by carriers. Many towers accomodate multiple carriers with 30+ year leases that renew every 5 years with a 3% to 5% or greater bump in rent. The rent paid by carrieers also has a fairly large spread versus the ground rent AMT pays for the land under the tower.

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Related Tickers

10/25/2016 1:41 PM
AMT $116.61 Down -0.14 -0.12%
American Tower CAPS Rating: ****
CCI $94.14 Down -1.00 -1.05%
Crown Castle Inter… CAPS Rating: **