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Motley Fool Issues Rare “All In” Buy Alert

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Aside from being the largest real estate investment trust (REIT) by market capitalization, American Tower (AMT 1.38% ) has been a tremendous wealth builder over the years, providing a nearly 15% annualized return for the past 20 years.

The REIT, which owns, develops, and leases communications towers and data centers, is down just over 6% this year. Today's discounted price may leave investors to wonder if right now is a good time to buy American Tower or if it's better to wait.

Here's a closer look at where this pure-play REIT is today and where it could be in the near future.

American Tower is the largest communications operator in the world, having interest and ownership in over 222,000 data centers, antenna systems, and cell towers in 25 countries. The REIT leases its portfolio of assets to major communications providers like AT&T and T-Mobile US among many others -- keeping the world connected.

The REIT's stock price took a tumble earlier in 2022, largely due to general market volatility as well as inflation and recessionary concerns, but there was also growing concern over the impact of the Sprint and T-Mobile merger on its tenant billings because it would lead to the companies needing fewer towers and thus fewer bookings for American Tower.

Concerns weren't unwarranted. American Tower's billings for the U.S. and Canada were down 4% to 5% this past quarter. However, its international markets are more than making up for the loss in bookings. As of Q2 2022, tenant billings were up 7.8% from the year prior, led primarily by the rollout of 5G technology in its international markets, helping revenue increase by 17.1%.

Its performance was so strong in the most recent quarter, particularly in its international markets, that it's bumping up its forecast for the remainder of 2022 for tenant billings; adjusted earnings before interest, taxes, amortization, and depreciation (EBITDA); adjusted funds from operations (AFFO); and revenue.

The long-term outlook for American Tower looks incredibly good given the world is becoming increasingly reliant on the services American Tower provides. The rollout of 5G technology still has several years before it's complete, meaning its bottom line should continue to benefit from new billings for 5G. What's more, many of its tenants in developing nations are still making the transition from 3G to 4G, so there is an even longer runway for growth in those markets.

It's also actively expanding its portfolio. In the second quarter of 2022, American Tower acquired 118 new communications sites for a total of $90 million. And in 2021 it branched into the world of data centers by acquiring CoreSite, a former data center REIT, which is helping the company diversify its holdings and further expand into communications and technology needs. 

The CoreSite acquisition did bump its debt ratios to higher than historical levels, but the company is actively addressing its balance sheet. Its latest move is a partnership in its data center business, which will give the company more liquidity.

I personally think today's discount is a valuable time to buy. The market could take another dip bringing American Tower's share prices back down with it, but it could also continue on its path toward recovering, meaning investors who wait could pay more for the stock in the future. 

Timing the market is extremely difficult, so rather than trying to get the best price possible, focus on the company's current performance as it relates to its value and growth opportunities -- which are all good.

It's trading around 28 times its projected AFFO for 2022, which is on the higher side of the REIT average of between 20 and 30 times funds from operations. However, given the company's track record, unparalleled footprint, and safe dividend payments, I still consider it a value buy -- not to mention the REIT offers a 2% dividend yield.

Liz Brumer-Smith has positions in American Tower. The Motley Fool has positions in and recommends American Tower. The Motley Fool recommends T-Mobile US. The Motley Fool has a disclosure policy.

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