American Tower Corporation (AMT) and Crown Castle International Corp. (CCI) are two of the top players in the telecommunications real estate investment trust (REIT) space. AMT operates primarily through five segments — U.S. property, Asia property, EMEA property, Latin America property, Services and Other. CCI’s segments are towers and small cells.

As  AMT and CCI both own, operate and lease space on communications sites to wireless service providers, among others, they are expected to generate huge returns amid the burgeoning 5G boom.

While AMT has returned 52.9% over the past three years, CCI has gained 40.2%. In terms of past-year performance, CCI is a clear winner with 7.2% returns versus AMT’s negative values. But which of these two stocks is a better pick now? Let’s find out.

Latest Movements

AMT announced on December 23 that it has closed its acquisition of InSite Wireless Group, LLC. The company expects the assets acquired from acquisition  to generate roughly $150 million in property revenue and roughly $115 million in gross profits in 2021. Also in December, AMT declared its quarterly cash distribution of $1.21 per share payable on February 2, 2021.

The company has signed a new long-term agreement with T-Mobile US, Inc. (TMUS).The new agreement enhances TMUS’ access to AMT’s United States’ sites while locking in synergies and facilitating TMUS’ continued rapid, efficient deployment of broad and deep nationwide 5G. It is hoped the arrangement will drive significant value for both parties over its nearly 15-year term.

CCI announced a long-term agreement with DISH Network Corporation (DISH) on November 16, through which CCI will lease DISH space on up to 20,000 communication towers. CCI is the first infrastructure partnership in which  DISH has embarked. In the words of Jay Brown, CCI CEO, “We are excited to establish this long-term strategic relationship with DISH, and we look forward to supporting their nationwide 5G network deployment for years to come.”

In  November, the company appointed Chris Levendos to lead CCI’s small cells and fiber solutions activities as Executive Vice President and Chief Operating Officer – Fiber. CCI announced a quarterly cash dividend of $1.33 per common share on October 22, which was paid on December 31.

Recent Financial Results

AMT’s revenue surged 5% sequentially to $2 billion for the third quarter ended September 30, 2020. Its property revenues increased 5% sequentially and services revenue increased 27.8% sequentially to $25.3 million. Operating income increased 7.8% year-over-year to $785.1 million. And net income increased 3.2% sequentially to $462.9 million, yielding EPS of $1.04, which increased 4% sequentially.

CCI’s revenue for the third quarter ended September 30, 2020 increased 3.2% sequentially to $1.5 billion. Its site rental revenue increased 4% year-over-year to $1.3 billion, and services and other revenue increased 21.5% sequentially. Operating income increased 13.3% sequentially to $434 million.

So, AMT is in an advantageous position here.

Past and Expected Financial Performance

AMT’s revenue and EPS have grown  at a CAGR of 6.5% and 17.2%, respectively, over the past three years. The  company’s EBITDA grew at a CAGR of 8.2% over the same period.

Analysts expect AMT’s revenue to increase 7% for the quarter ended December 31, 2020, 6.9% for the quarter ending March 31, 2021, and 7.5% in 2021. The company’s EPS is expected to grow 48.4% for the quarter ending March 31, 2021, and 23.8% in 2021. Moreover, its EPS is expected to grow at a rate of 15.9% per annum over the next five years.

In comparison,  CCI’s revenue and EPS have grown  at a CAGR of 11.6% and 10.3%, respectively, over the past three years. Also, the company’s EBITDA grew at a CAGR of 12.3% over the same period.

The market expects CCI’s revenue to increase 5.4% for the quarter ended December 31, 2020, 6.9% for the quarter ending March 31, 2021, and 5.7% in 2021. The company’s EPS is expected to grow 42.1% for the quarter ending March 31, 2021, and 31.2% in 2021. Moreover, CCI’s EPS is expected to grow at a rate of 17.5% per annum over the next five years.

Profitability

AMT’s trailing-12-month revenue is 1.36 times CCI’s. Moreover, AMT is more profitable with a gross margin of 71.9% versus CCI’s 66.6%.

Also, AMT’s ROE and ROA of 34.2% and 4.7%, respectively, compare favorably with CCI’s 7.3% and 2.6%.

Valuation

In terms of forward P/E, CCI is currently trading at 80.58x, 67.8% more expensive than AMT which is currently trading at 48.03x. Though CCI is less expensive in terms of trailing-12-month P/S (10.99x versus 12.15x), its forward PEG of 6.43x is 47.2% higher than AMT’s 4.24x.

In terms of trailing-12-month price/cash flow, AMT’s 25.50x is 12.4% higher than CCI’s 22.69x.

POWR Ratings

AMT and CCI are both rated “Neutral” in our proprietary POWR Ratings system. Here are how the four components of overall POWR Rating are graded for AMT and CCI:

AMT has a “C” for Trade Grade, and Buy & Hold Grade, and a “D” for Peer Grade, and Industry Rank. It is currently ranked #19 of 57 stocks in the REITs – Diversified industry.

CCI holds a “C” for Trade Grade, and Industry Rank, a “B” for Buy & Hold Grade, and a “D” for Peer Grade. It is currently ranked #22 of 50 stocks in the Real Estate Services industry.

The Winner

Both AMT and CCI are good investment bets considering their market dominance. However, AMT appears to be a better choice based on the factors discussed here. AMT’s superior financials and higher profitability should help it perform better than CCI.

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AMT shares were trading at $219.38 per share on Thursday afternoon, up $4.49 (+2.09%). Year-to-date, AMT has declined -2.26%, versus a 1.44% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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