Is American Tower Fairly Priced After New Telecom Partnerships Boost Investor Interest?

• If you have ever looked at American Tower and wondered whether now is the right time to buy, sell, or simply watch from the sidelines, you are not alone. Let's dive into what the numbers are saying about its value.
• The stock's price recently closed at $183.59, climbing 3.2% over the last week. However, it dipped 3.4% in the last month and has seen only a slight 1.4% gain since the start of the year.
• News over the past few weeks has centered on American Tower's continued investment in next-generation infrastructure and several signs of strategic partnerships with telecom operators. These moves have caught the attention of investors looking for growth and stability in a rapidly evolving digital landscape.
• According to our latest checks, American Tower scores 5 out of 6 for undervaluation, putting it close to the top among its peers. In the coming sections, we will break down what this score means using different valuation models. We will also consider if there is a smarter and more holistic way to look at the company's true worth by the end of the article.

American Tower delivered -3.3% returns over the last year. See how this stacks up to the rest of the Specialized REITs industry.

Approach 1: American Tower Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates what a company is worth by projecting its future cash flows and then discounting them back to today's dollars. For American Tower, this approach uses adjusted funds from operations to forecast how much cash the business will generate for shareholders each year, taking into account future growth and risk.

Currently, American Tower generates about $4.93 billion in free cash flow each year. Analyst estimates suggest this could grow steadily, reaching around $6.41 billion by 2029. Beyond these initial projections, future cash flows are extrapolated using moderate growth assumptions provided by Simply Wall St.

All of these predicted cash flows are brought back to today's value, resulting in an estimated intrinsic value of $262.77 per share. With the current share price at $183.59, this suggests the stock is trading at a 30.1% discount to its calculated fair value.

In summary, the DCF model indicates that American Tower may be considerably undervalued at current levels, with potential upside if these growth projections are achieved.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests American Tower is undervalued by 30.1%. Track this in your watchlist or portfolio, or discover 879 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for American Tower.

Approach 2: American Tower Price vs Earnings

The Price-to-Earnings (PE) ratio is a popular way to value profitable companies, like American Tower, because it relates a company’s market price to its earnings power. Investors often use the PE ratio as a quick check of whether a stock is expensive or cheap relative to its ability to generate profits.

Growth expectations and business risks play a big role in what is considered a “normal” or “fair” PE ratio. Higher expected earnings growth and lower risks usually justify a higher PE ratio, while slower growth and more risk reduce it. Comparing a company's PE to those of its peers and the overall industry can offer valuable context, but isn’t always enough on its own.

Right now, American Tower trades at a PE ratio of 29.2x. That is quite a bit above the Specialized REITs industry average of 17.0x, but below the average for its closest peers, which stands at 41.2x. Comparing just these numbers might make the stock look somewhat expensive, but raw multiples do not capture the whole picture.

Simply Wall St’s “Fair Ratio” metric tackles this issue directly by blending factors such as earnings growth, profit margins, industry trends, market cap and risk. For American Tower, the Fair PE Ratio is calculated to be 34.7x. This tailored benchmark offers a more nuanced, apples-to-apples view of valuation than industry or peer averages by reflecting what a reasonable multiple should be given the company’s unique profile.

Since American Tower’s current PE of 29.2x is notably below its Fair Ratio of 34.7x, the analysis suggests the shares may be undervalued relative to their fundamentals and prospects.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1406 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your American Tower Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. A Narrative is your own story about a company, combining your perspective on its future with concrete estimates for revenue, earnings, and margins to calculate what you believe is a fair value.

Narratives link a company’s backstory and operating outlook directly to financial forecasts and fair value. This approach is transparent and easy to follow. It makes complex analysis more accessible and dynamic, as you can check out and create Narratives yourself on Simply Wall St’s Community page, just like millions of other investors.

These Narratives help you decide when to buy or sell by comparing your fair value against the actual market price, and they automatically update as new information, such as news or earnings reports, comes in. For example, with American Tower, one investor may see a fair value as high as $280 by forecasting rapid digital infrastructure expansion, while another might project a lower value around $190 by focusing on more conservative growth. This demonstrates how Narratives personalize investing decisions to fit your viewpoint.

Do you think there's more to the story for American Tower? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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