BUSINESSWEEK ONLINE : AUGUST 30, 1999 ISSUE
BUSINESSWEEK INVESTOR -- INSIDE WALL STREET

A Towering Opportunity?


Cellular phone companies would rather sell service than build and operate the towers that make the calls connect. Those are coming under the ownership and management of companies like American Tower (AMT), which rent the towers back to the service companies. In fact, on Aug. 9, the Boston company acquired 2,100 towers from VodaFone AirTouch (VOD) through a 99-year lease. That brings the company up to 7,100 towers in the U.S. It also will build an additional 400 to 500 towers for VodaFone. Investors were unimpressed with the deal--and just about everything else the company is doing. The Big Board stock, at 20 1/2, is down from near 30 at the end of 1998.

But some savvy investors think the stock is a steal. ''It's got exceptional management and a powerful cash flow,'' says David Wilmerding of Nevis Capital Management in Baltimore. The stock is one of the few in the Nevis Fund--up 159% from January through July--that hasn't gone up this year.

Merrill Lynch analyst Keith Fawcett says all the tower stocks are down because the industry raised $2 billion in initial and secondary offerings this year. But a temporary stock glut is often an opportunity. In fact, on Aug. 10, institutional investor Wellington Management said it had increased its shares from 10.2 million to 15.1 million in the second quarter, giving it a 10.5% stake.

American Tower reports losses--the Street estimates 35 cents a share this year, mainly due to amortization and depreciation. But those are noncash charges, so the company generates plenty of cash for expansion. The business model is similar to that of cable TV and radio in which the payoff comes in cash flow long before earnings.

Building a tower costs around $200,000, but it has a 30-year expected life, requires little maintenance, and best yet--the operating margin is 85% to 90%. Wilmerding thinks once the company reaches its goal of 15,000 to 18,000 towers, shares will be selling at 80.

BY JEFFREY M. LADERMAN

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

BACK TO TOP
RELATED ITEMS
A Towering Opportunity?

CHART: Calling All Bargain Hunters



INTERACT
E-Mail to Business Week Online

 
Copyright 1999, Bloomberg L.P.
Terms of Use   Privacy Policy