American Tower Corporation (NYSE:AMT)
American Tower Corporation is one of the top owners and operators of wireless and broadcast communications sites in North America. The company was founded as a spin-off of American Radio Systems in 1995. When it merged with SpectraSite Communications in 2005, it gained 22,000 global communications sites – mostly wireless and broadcast towers – and solidified its position as a premier tower owner and operator company.
American Tower has a straightforward business model. It owns 26,000 towers globally, which it leases to carriers (such as AT&T, Sprint and Verizon) who sign contracts typically with terms of up to five years or more. Because the company owns the land under their many towers as well, they filed in June to reorganize into a Real Estate Investment Trust (REIT) for tax purposes, while keeping the non U.S. holdings in a taxable subsidiary.
“This will produce a modest cash stream for shareholders,” says Akre, “while still leaving the company with ample capital to meet growth and reinvestment plans.”
The company has plans to grow significantly in upcoming years. It plans to deploy three to four national 4G networks in the U.S. and expand into international markets through acquisitions and tower building, which it is doing rapidly. By the end of this year, the company will have almost as many towers in international markets as it does in the U.S.
The remainder of their reinvestment capital they have used to strengthen their balance sheet and buy back shares.
“The net result has been a growth in economic value per share which we calculate to be a mid- to upper-teens rate since 2002,” Akre told GuruFocus.
American Tower has grown its cash flow every year almost every year over the last decade. In 2010, they generated $674 million, an increase from $592 in 2009. It has long-term liabilities and debt of about $6.3 billion, with cash of about $450 million. Gross profit margins have steadily improved, from 25.2% in 2001 to a 10-year high of 76.1% in 2010. The stock has increased 62% in the last five years and declined .81% year to date. Chuck Akre owns 1,389,005 shares after adding 103,230 at an average price of $51.75 in the second quarter.
American Tower has a market cap of $21 billion, a P/E of 57.3, a P/B of 6, a P/S of 10.5 and an annual average earnings growth of 9.1% over the past 10 years. It shares were traded at around $52.74.
MasterCard also has a fairly simple business model with three tiers – franchisor, processor and advisor. As a franchisor, the company provides payment products that work at more than 28.5 million acceptance locations worldwide. As a processor, the company enables global commerce as one of the world’s largest VPNs and helps businesses by quick adoption of new payment options and customized solutions. As an advisor, the company tracks customer behavior and buying trends and then provides professional services to the payments industry. One of MasterCard’s chief goals is to accelerate the displacement of cash and checks.
Akre bought MasterCard stock when the enactment of the Durbin amended Dodd-Frank Bill was creating uncertainty in the debit card market. By the close of the quarter, the Federal Reserve had clarified the rules for the industry, which had a positive effect on the stock. Akre’s portfolio contains 159,220 shares of MasterCard stock after adding 19,340 shares in the first quarter 2011 at an average price of $243.23 per share. Today the stock is at $303.09 per share, translating into a significant profit for him. “We are expecting to be owners for years to come,” Akre said. “Stay tuned.”
MasterCard has raised its revenue from $338 million in 2008 to $1.6 billion in 2010, has zero long-term debt and about $4 billion in cash. It has a market cap of $40 billion, a P/E of 21.1, P/B of 7.8, P/S of 7.2 and dividend yield of 0.2%.
Chuck Akre's full second-quarter letter is available here.