Shares of American Tower AMT have experienced a more than 16% decline in the past three months, closing at $199.59 on Wednesday on the NYSE. In the past three months, the stock has underperformed the Zacks REIT and Equity Trust - Other industry and the S&P 500 composite.

This prominent independent owner, operator and developer of multitenant communications real estate has faced a few challenges this year, hindering its growth trajectory. Its sale of the troubled Indian tower operations to Data Infrastructure Trust, an Infrastructure Investment Trust sponsored by an affiliate of Brookfield Asset Management BAM has affected its performance in the third quarter. 

However, before making any hasty decision to remove this stock from your portfolio or rushing to add following this decline, it would be prudent to understand its potential in detail to better analyze how to play the stock after the price decline.

Three-Month Price Performance

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Speedbumps for American Tower

American Tower has faced significant headwinds in India and Latin America, affecting its growth prospects in these regions. It exited the Indian market in September 2024, 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 exit reflects challenges in profitability and operational complexity in the region.

In Latin America, American Tower is facing a $36 million impact on EBITDA and a $33 million reduction in AFFO compared to its previous outlook due to additional reserves related to Colombian carrier WOM, which is effectively undergoing bankruptcy proceedings. Also, Latin America continues to grapple with challenges stemming from issues with Oi, the potential for further consolidation, and the impact of foreign exchange rate fluctuations. These are limiting the growth projections for Latin America.

Opportunities Ahead for American Tower

Although this tower REIT encountered challenges in 2024, it retains substantial growth opportunities ahead. American Tower's third-quarter results highlighted the sustained demand for its extensive global communications infrastructure portfolio. The ongoing deployment of 5G networks has driven strong activity in the United States and Europe, reflecting robust growth in these mature markets. 

Meanwhile, emerging markets, particularly in Africa, are witnessing a surge in network upgrades and coverage expansion, which has bolstered the pipeline for new business. These developments underscore American Tower's pivotal role in supporting the evolving needs of the telecommunications industry across diverse geographies.

During the third quarter, American Tower’s organic tenant billings growth was a healthy 5% across the United States and Canada and 6.3% in Europe. In Africa, organic tenant billings growth was 11.5% for the period.

Moreover, American Tower’s data center business is doing well, and during the third quarter earnings release, management noted that “CoreSite delivered another fantastic quarter of new leasing, and is on pace for its third consecutive year of record sales.” This comes amid the growing adoption of hybrid-IT solutions and the emergence of AI-driven workloads that are driving increased demand for data centers.

Estimate Revisions and Valuation

The estimate revision trends indicate that after witnessing downward revisions 60 days ago, the consensus estimate for both 2024 and 2025 adjusted funds from operations (AFFO) per share have undergone no adjustments over the past month.

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

American Tower stock is trading at a forward 12-month price-to-FFO of 19.03X, ahead of the REIT industry average of 16.09X but below its one-year median of 20.37X. American Tower 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

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Final Thoughts on AMT

Although AMT faced setbacks in 2024 that impacted its growth rate and led to the REIT pausing its dividend increases for the year, given its portfolio of more than 148,000 communication sites worldwide and the unmatched geographic diversification of its sites, American Tower is strategically positioned to capture incremental demand from global 5G deployment efforts, growing wireless penetration and spectrum auctions. Its Data center business is also performing well. These opportunities are likely to support renewed growth momentum and pave the way for the resumption of dividend increases in the coming year.

However, given the current estimate revision trends and an expensive valuation, it would be prudent for investors to refrain from buying the stock. Existing shareholders may choose to remain invested, given the company’s strong history of paying growing dividends and focus on appealing property sectors.

At present, American Tower carries a Zacks Rank #3 (Hold). 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.

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