10-Minute Investment Autopsy No. 11: American Tower

The stock had already moved. The economics were just getting started.

If you haven’t read the guide to the 10-Minute Investment Autopsy series, you can find it here.

The Original Thesis

Who: Larry Robbins

When: October 2005

What: American Tower (ticker: AMT)

The Thesis:

• We are early in the growth in demand for wireless capacity

• American Tower (AMT), having acquired its main competitor, SpectraSite, is by far the largest owner of wireless communication towers in the U.S.

• Wireless carriers will be coming out with new services which will drive demand for bandwidth

• New tower growth is severely constrained by zoning regulations

• We are at fewer than 3 tenants per tower out of a maximum of 6 so the towers are well below their capacity utilization

• AMT has locked in 3% per year pricing in its contracts

• The company has both the best assets and the best operating management in the business

• Larry believes they will earn $1.70 per share in Free Cash Flow in 2007, so the stock is still inexpensive at 14x that normalized number

These are the highlights of American Tower’s then-recent financials up to the point when Larry was presenting his thesis:

This is the stock chart up to the time when Larry presented his thesis:

Pause here. Think through the thesis and the facts and decide what you agree with, what you disagree with and whether you would invest based on the information available.

What Happened (Just the Facts)

American Tower’s financials following Larry’s presentation were as follows:

• The company doubled its FCF per share between 2005 and 2010.

  

• American Tower shareholders outperformed the market by ~100% over the 5 years following Larry’s thesis

There is a lot more to the case:

• The Autopsy - the reasons for what happened

• The Lessons that you can apply to your own investing

• Discussion Questions for you to think about and discuss with other thoughtful investors in the weekly case thread