Cell Tower American Tower Corp

Photo credit: Flickr user Mike Mozart

The mobile device market is expected to reach 2.4 billion units by the end of this year. That's a 4.2% increase over last year. That growth is posing big problems for carriers as it's increasing the need for additional cell towers to handle all the talking, texting, and data being used by consumers.

However, what's bad news for carriers is great news for American Tower (NYSE:AMT). The company, which owns nearly 69,000 communication sites around the world, has benefited as carriers seek it out for new tower sites.

The demand for the company's towers are expected to yield another bump in earnings per share when the company announces third-quarter results Thursday morning. Analysts expect the company to report $0.57 per share in earnings, which would represent a nice boost from the third quarter of last year when the company earned $0.46 per share. Earnings per share, however, aren't the most important thing for investors to watch, instead, let's take a closer look at three things investors should keep an eye on when the company reports results on Oct. 30. 

First, let's review
Last quarter American Tower reported solid results as sales rose 28% year over year and GAAP earnings surged 132%. This enabled the company to beat analysts' estimates as the company reported earnings of $0.58 per share, which was four cents higher than analysts were expecting. This strong showing was due to solid 11% organic sales growth in the U.S. and stronger 18% growth in international markets.

1. Watch the growth in cash flow
While Wall Street might focus on earnings per share, that's actually not the best number to watch at American Tower. Because the company is structured as a real estate investment trust, or REIT, the number that matters more here is adjusted funds from operations, or AFFO, which is a proxy for the company's cash flow. Last quarter AFFO was up 29.4% to $474 million. We will be looking for a similar gain of more than 20% from last year's third quarter, which would correspond with American Tower's full-year guidance calls that calls for AFFO growth at the midpoint of 20.8%.

2. Any changes to guidance?
Speaking of 2014 guidance, the company provided full-year guidance along with its second-quarter results. That guidance calls for total rental and revenue management revenue for 2014 of $3.945 billion-$4.015 billion and Adjusted EBITDA of $2.615 billion-$2.655 billion, both representing 21.1% growth at the midpoint. Meanwhile, AFFO is expected to be $1.755 billion-$1.795 billion, which represents 20.8% growth at the midpoint.

What we want to see in the third quarter is that the company remains on track to at least hit the midpoint of its guidance, or better yet, announce that it will exceed full-year guidance. That wouldn't be all that surprising given that last quarter the company noted that it expected favorable leasing demand for the balance of the year so it raised guidance at that time. Another increase in guidance could send the stock headed higher as well.

3. Look at core growth
Last quarter CEO Jim Taiclet noted that its second-quarter results exceeded expectations thanks in part to strong organic core growth. He said:

4G coverage and densification initiatives by our major tenants drove Organic Core Growth of over 11% in the U.S., and significant investment levels by tenants internationally drove Organic Core Growth of nearly 18%. These strong Organic Core Growth trends, in combination with contributions from new assets, led to record AFFO per share growth in the quarter of over 29%.

We want to see strong core growth again this quarter as it means the company is getting higher returns on its existing assets. One of the big economic drivers of a communication tower is adding additional tenants to the tower like we see in the following slide.

American Tower Corp Tenants

Source: American Tower Corp. Investor Presentation 

The biggest investment American Tower makes is the initial construction or acquisition of a tower. However, it doesn't cost all that much extra to add additional tenants so American Tower's return on investment really jumps with each tenant added to a tower. Because this is a key driver on returns, we want to see the strong organic core growth trends continuing this quarter.

Investor takeaway
American Tower is expecting to deliver another fine quarter. The company is projecting strong growth in cash flow driven in large part by strong organic core growth. We're hoping to see the company deliver just that when it reports third quarter results later this week. 

Matt DiLallo owns shares of American Tower. The Motley Fool recommends American Tower. The Motley Fool owns 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.