Zacks_Analysts' Blog : Higher Tax Hurts American Tower - Analyst Blog

On a positive note, revenue of $423.4 million (up 7.5% year over year) exceeded both the consensus view and our estimates. Segment wise, Rental & Management revenue was about $406.8 million, up 5.8% year over year. Sales from the Network Development Services segment approximated $16.6 million, up 76.6% over the prior-year quarter.

During the quarter, the company generated approximately $203.6 million of cash from operations while capital expenditure was $64.2 million. American Tower spent $92.1 million on acquisitions and $35.8 million for construction of new communication sites during the period. It built 212 communication sites in the quarter and acquired 230 sites in Brazil.

The company also reiterated its full-year guidance. Revenue from the Rental & Management segment is expected to range between $1,640 million and $1,665 million. Gross margin for this segment is projected at about $1,277 million - $1,297 million. Revenue for the Network Development & Services segment is estimated in the range of $35 million - $50 million with a projected gross margin of $15 million - $21 million.

American Tower continues to expect adjusted EBITDA of $1,161 million - $1,185 million. Income from continuing operations is projected in the range of $235 million - $247 million with cash flow from operations of $838 million - $878 million. The company has revised its capital expenditure guidance to range between $220 million and $255 million.

Moving forward, we believe the company’s foray into emerging markets represents a key growth catalyst. Recently, American Tower acquired XCEL Telecom Pvt. Ltd., a major wireless tower operator in India. After China, India is the second-largest growth market for wireless services where subscriber base is projected to reach 737 million by 2012. The acquisition offers significant revenue opportunity for American Tower and increases the total number of wireless tower sites controlled by the company to over 26,000.

In our opinion, American Tower’s near-term operating performance will be driven by substantial demand for tower space to facilitate high-speed wireless data services and mobile video, along with emerging 3G/4G technologies.

The company currently commands the second-largest position in the wireless tower market and maintains one of the strongest EBITDA margins in the industry. EBITDA margin for the most recent quarter was 68%, well above its peers Crown Castle International (CCI) and SBA Communications Corp. (SBAC).

The company is progressing well with healthy free cash flow which reached approximately $139.4 million in the second quarter, driven by stable operating costs. With the tower industry moving forward, operating cash flow is likely to accelerate. This is reflected in management’s 11% year-over-year growth projection for 2009. American Tower also has sufficient liquidity with no major debt obligation maturing within the next three years.

Our long-term views regarding the wireless tower industry remain bullish and we thus maintain our Buy recommendation for American Tower.