Fiber Network Expansion And Enterprise Focus Will Open New Frontiers

Key Takeaways

• Transitioning to fiber-based services and network expansion will enhance revenue growth, net margins, and operational efficiency.
  
• Strategic focus on enterprise revenue streams and government grants aim to boost cash flow and shareholder value with lower capital intensity.
  
• Transitioning away from legacy technologies and consumer services poses short-term revenue risks amid elevated competition and strategic shifts towards fiber-based streams in the U.S. segment.

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.

• ATN International is focused on transitioning its U.S. business from legacy technologies to higher-margin, fiber-based services, enhancing revenue and net margins in the long term.
  
• The company has completed a significant expansion of its fiber network, which is expected to drive future revenue growth and improve operational efficiency.
  
• Government grants of over $370 million for fiber expansion provide the potential for growth with lower capital intensity, positively impacting future cash flows and earnings.
  
• ATN's international segment continues to grow with increased broadband penetration and operational efficiencies, promising revenue and margin gains.
  
• The strategic move towards enterprise and carrier-driven revenue streams is anticipated to create a more sustainable and higher margin revenue base, enhancing free cash flow and shareholder value.

ATN International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming ATN International's revenue will grow by 1.4% annually over the next 3 years.
• Analysts are not forecasting that ATN International will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate ATN International's profit margin will increase from -4.8% to the average US Telecom industry of 12.7% in 3 years.
• If ATN International's profit margin were to converge on the industry average, you could expect earnings to reach $96.0 million (and earnings per share of $6.4) by about August 2028, up from $-34.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 5.8x on those 2028 earnings, up from -7.1x today. This future PE is lower than the current PE for the US Telecom industry at 15.5x.
• Analysts expect the number of shares outstanding to grow by 0.67% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.57%, as per the Simply Wall St company report.

ATN International Future Earnings Per Share Growth

Risks

• The transition away from legacy technologies and consumer services in the U.S. segment may result in a short-term revenue decline, which can impact current revenue levels.
  
• The U.S. Telecom segment's revenue was negatively affected by the conclusion of significant government programs (ECF and ACP) and lower construction revenue, leading to decreased adjusted EBITDA, thereby affecting overall profitability.
  
• The company's strategic pivot in the U.S. towards enterprise and carrier-driven fiber-based revenue streams entails execution risks, which can temporarily impact EBITDA and net income.
  
• Revenue in the U.S. segment is under pressure from increased competition and the sunset of certain programs, indicating challenges in maintaining stable operating income and cash flow.
  
• For 2024, ATN took a $35.3 million goodwill impairment charge, which contributed to a net loss for the year; any similar future impairments could further impact net margins and earnings.

Valuation

• The analysts have a consensus price target of $29.0 for ATN International based on their expectations of its future earnings growth, profit margins and other risk factors. 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 $22.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $753.4 million, earnings will come to $96.0 million, and it would be trading on a PE ratio of 5.8x, assuming you use a discount rate of 8.6%.
• Given the current share price of $16.61, the analyst price target of $29.0 is 42.7% 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.