Rural Connectivity Challenges Will Persist Though Fiber Adoption Will Expand

Key Takeaways

• Revenue stability is challenged by government funding uncertainties and competition from larger, urban-focused and satellite providers targeting ATN's traditional markets.
  
• High capital investments in climate-exposed regions and reliance on legacy revenue create ongoing risks to margins and long-term earnings growth.
  
• Heavy dependence on government subsidies, shrinking legacy revenues, competitive pressures, and elevated capital costs threaten growth, profitability, and long-term financial stability.

Catalysts

Through its subsidiaries, provides digital infrastructure and communications services to residential, business, and government customers in the United States, Guyana, the US Virgin Islands, Bermuda, and internationally.

• While ATN International is benefitting from long-term growth in digital services and broadband adoption in emerging and remote markets-as shown by expanding fiber networks and a growing high-speed subscriber base-the persistent risk of subsidy program wind-downs and the political uncertainty surrounding government funding for rural connectivity could create sustained pressure on revenue stability and hamper future earnings growth.
  
• Although the company is capitalizing on increased data consumption and growing enterprise/carrier demand in both domestic and international markets, the ongoing shift toward urbanization and the rise of large, well-capitalized competitors (including satellite entrants) threaten ATN's traditionally underserved market focus, placing long-term revenue and customer growth at risk.
  
• Despite stable or growing ARPU in core high-speed data products and notable improvements in operational efficiency, ATN's need for continued high capital expenditures in climate-vulnerable regions makes its infrastructure exposed to severe weather and climate change, which could unexpectedly raise costs and negatively impact net margins.
  
• While enhanced carrier solutions, managed services, and government-funded infrastructure initiatives suggest a path to improved recurring revenue, the company's reliance on legacy revenue streams undergoing decommissioning creates short
• to medium-term headwinds and delays the realization of the margin expansion and earnings stability anticipated from new offerings.
  
• Although ATN's strategy of driving operating leverage and shareholder returns through disciplined capital allocation is encouraging, challenges related to regulatory scrutiny and uncertain returns on large-scale rural network investments mean that the roadmap for sustainable free cash flow growth remains fragile over the long term.

ATN International Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on ATN International compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming ATN International's revenue will grow by 1.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -7.1% today to 0.2% in 3 years time.
• The bearish analysts expect earnings to reach $1.5 million (and earnings per share of $1.11) by about August 2028, up from $-50.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 271.9x on those 2028 earnings, up from -4.5x today. This future PE is greater than the current PE for the US Telecom industry at 15.3x.
• Analysts expect the number of shares outstanding to grow by 0.95% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.93%, as per the Simply Wall St company report.

ATN International Future Earnings Per Share Growth

Risks

• The company's long-term reliance on government subsidies and programs in rural and international markets presents political risk, as seen from the wind down of subsidy programs causing a recent revenue decline, which could further threaten recurring revenues if government support continues to decrease or is not replaced.
  
• Declining legacy service revenues, both in the U.S. and internationally, highlight a risk that new fiber and high-speed services may not scale fast enough to offset these declines, leading to long-term revenue stagnation or contraction if newer segments fail to deliver sufficient growth.
  
• Sustained competitive pressures, particularly from disruptive new entrants in international prepaid markets, and intensifying fiber and broadband competition in the U.S., threaten future market share and pricing power, which could compress top-line revenues and net margins.
  
• Ongoing high capital expenditure needs to modernize the network, alongside restructuring and reorganization charges, place persistent pressure on free cash flow and limit the company's ability to fund organic growth or return capital to shareholders, which may dampen long-term earnings.
  
• Exposure to low-density, infrastructure-heavy markets increases operational risk, with factors such as reduced scalability, potential tightening of labor or materials supply, and climate-related disruptions likely to keep cost structures high and net margins under pressure over the long run.

Valuation

• The assumed bearish price target for ATN International is $21.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of ATN International's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $36.0, and the most bearish reporting a price target of just $21.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $747.6 million, earnings will come to $1.5 million, and it would be trading on a PE ratio of 271.9x, assuming you use a discount rate of 8.9%.
• Given the current share price of $15.39, the bearish analyst price target of $21.0 is 26.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.