S&P Global upgrades American Tower to ’BBB+’ with stable outlook

Investing.com -- S&P Global Ratings has upgraded American Tower Corp (NYSE:AMT). to ’BBB+’ with a stable outlook, removing the company from under criteria observation.

The upgrade reflects American Tower’s stable and predictable earnings growth and cash flow, supported by its U.S. tower business which benefits from attractive leasing economics, strong margins in the mid-to-high-60% range, and long-term contracts with price escalators.

Despite sluggish growth in recent years as U.S. wireless carriers reduced capital spending, S&P expects the next phase of 5G wireless network deployments to focus on densification, improving revenue growth for American Tower. For 2025, organic tenant billings growth (excluding Sprint churn) is projected at around 4.0%-4.5%, slightly weaker than 2024, but increased wireless capital expenditure in the U.S. should benefit tower operators in 2026 and beyond.

American Tower has reduced its exposure to higher-risk emerging markets, including through the sale of its India operations and Mexico fiber business in 2024. As a result, property revenue from emerging markets has declined to 29% from 37%. The company has also decreased its allocation of discretionary capital towards emerging markets to one-third of its total from two-thirds just a few years ago.

The company’s data center operations, while small, are growing with expected revenue growth of around 12% in 2025. S&P believes mobile edge compute and Artificial Intelligence will likely be key growth drivers for the company’s data center operations over the next several years.

However, data center capital expenditure will pressure free cash flow over the next couple of years. Of the company’s $1.5 billion of discretionary capital expenditure, about 40% will be allocated to the data center segment, resulting in modestly negative post-dividend free operating cash flow in 2025 and 2026.

S&P expects adjusted debt to EBITDA to remain in the mid-5x area, below the 5.75x upgrade threshold for the current rating. The agency also projects funds from operations to debt to be around 13%-14% in 2025 and 2026, providing cushion relative to the 11% downgrade threshold.

The stable outlook reflects S&P’s expectation that adjusted leverage will remain in the mid-5x area as modest EBITDA growth is offset by higher capital expenditure and the company’s large common dividend.

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