American Tower AMT shareholders have faced a jittery environment in recent months due to the significant headwinds it faced in India and Latin America, affecting its growth prospects in these regions. 

The sale of its troubled Indian tower operations to Data Infrastructure Trust, an Infrastructure Investment Trust backed by a Brookfield Asset Management (BAM) affiliate, weighed on its third-quarter performance. Further, the Fed’s hawkish stance, signaling an extended period of macroeconomic normalization and higher borrowing costs, adds to the challenges.

As a result, in the past three months, AMT shares have not only declined 16.1% but also underperformed the Zacks REIT and Equity Trust - Other industry and the S&P 500 composite.

Before making a quick decision to sell this stock or rushing to buy it after the recent decline, it is essential to thoroughly assess the underlying concerns and evaluate its growth prospects. This approach will enable investors to determine the best strategy for navigating the stock's post-decline trajectory.

Three-Month Price Performance

Image Source: Zacks Investment Research

What Is Concerning for American Tower?

This prominent independent owner, operator and developer of multitenant communications real estate faced significant challenges over the past year, disrupting its growth trajectory. In September 2024, the company exited the Indian market, incurring a $1.2 billion loss, primarily including the reclassification of the company’s cumulative translation adjustment in India upon exiting the market of $1.1 billion. This decision highlights the difficulties in achieving profitability and managing operational complexities within the region.

In Latin America, American Tower is facing a $36 million hit to EBITDA and a $33 million decline in AFFO relative to its prior forecast, primarily due to additional reserves associated with Colombian carrier WOM, which is effectively navigating bankruptcy proceedings. 

Moreover, the region continues to face headwinds from ongoing challenges with Oi, the possibility of further market consolidation, and fluctuations in foreign exchange rates, all of which are constraining growth expectations for Latin America. Moreover, high customer concentration and the ongoing consolidation in the wireless industry, both in the United States and internationally, remain concerns for American Tower.

While solid dividend payouts are arguably the biggest enticements for REIT shareholders amid the setbacks that impacted its growth rate in 2024, this tower REIT also paused its dividend hikes for the year.

Adding to the woes is the Fed’s hawkish tone, which also indicates a prolonged macroeconomic normalization and higher borrowing costs. This is expected to impact capital investment, in turn affecting American Tower’s growth prospects.

AMT’s Estimate Revisions and Valuation

Even the estimate revision trends echo similar sentiments, with estimates remaining unrevised for 2024 adjusted funds from operations (AFFO) per share over the past month, while the same for 2025 moved south.

Image Source: Zacks Investment Research

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Also, American Tower stock is trading at a forward 12-month price-to-FFO of 18.16X, ahead of the REIT industry average of 14.71X but below its one-year median of 19.52X. AMT stock is also currently trading at a premium compared to its industry peers like SBA Communications Corporation SBAC.

Forward 12 Month Price-to-FFO (P/FFO) Ratio

Image Source: Zacks Investment Research

Final Thoughts on AMT

Although American Tower boasts a portfolio of more than 148,000 communication sites worldwide, enjoys unmatched geographic diversification of its sites and has a solid performing data center business, its near-term performance is likely to remain constrained given the ongoing challenges.

Moreover, refraining from holding American Tower stock now could be a strategic decision as the Federal Reserve's high interest rate environment is likely to impact REITs, including AMT. Borrowing costs for financing development and acquisitions are expected to remain high, while fixed-income investments will seem more attractive, reducing the relative appeal of dividend-paying stocks like AMT.

Despite recent corrections, AMT's valuation is still relatively high compared to peers. Also, estimate revisions don’t provide us with any bullish picture. Given the lack of any positive trend in estimate revisions and an expensive valuation, it would be prudent for investors to refrain from buying the stock.

At present, American Tower carries a Zacks Rank #4 (Sell). 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

American Tower Corporation (AMT) : Free Stock Analysis Report

SBA Communications Corporation (SBAC) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research