RBC Capital Markets analyst Jonathan Atkin raised his price target on shares of American Tower Corp. (NYSE: AMT) to $70 from $68 on higher 2013 outlook, while maintaining its "Outperform" rating.
The brokerage increased its 2012 EBITDA estimate for AMT to $1.791 billion from $1.771 billion and its 2013 estimate to $1.984 billion from $1.913 billion. It also lifted 2012 adjusted funds from operations per share estimate to $2.99 from $2.92 and its 2013 estimate to $3.46 from $3.30.
Atkin said he raised price target to reflect the higher out-year cash flow projections in his earnings model. His price target is based on a five-year discounted cash flow (DCF) valuation, in which he assumes a 6% discount rate and 16 times terminal year multiple in his DCF valuation, which conservatively assumes no incremental FCF growth after the terminal year, despite 2% to 4% contractual annual rent escalators.
The analyst said he is making minor adjustments to his 2012 and 2013 estimates to account for more even site leasing seasonality during 2012 and a slightly less conservative 2013 outlook. He is also updating his macro site leasing forecast to include 2013 projections by carrier.
Atkin raised Q1-2012 site leasing revenues and cash flow from $653.1 million and $486.2 million, respectively, to $657.2 million and $490.9 million. Q1-2012 EBITDA increases by about $5 million to $433.3 million and AFFO/share increases to $0.71 from $0.69.
Compared to 2012 projections, the analyst shows a similar 2013 contribution by AT&T as it completes most of its LTE build, a lower contribution by Verizon as its LTE build reaches nears completion in 2012, and higher contributions by Sprint and T-Mobile USA as they reach full velocity on their LTE overlay efforts.
Although there is a wide range of site leasing scenarios by carrier given uncertain forward-year budgets, the midpoint of Atkin's projection, 19,000 lease equivalents for the wireless industry, is similar to his 2012 projection. His 2013 macro forecast assumes no buildout of S-band licenses; should this commence, his outlook would likely prove conservative.
On the other hand, should T-Mobile be consolidated (and therefore potentially not complete an independent 4G buildout), our macro forecast could prove aggressive. However, the analyst's AMT model currently incorporates more conservative leasing in 2013 versus 2012.
American Tower is a wireless and broadcast communications infrastructure company that owns, operates and develops communications sites.
AMT is trading down 0.53% at $61.93 on Thursday.