Call Options Or Put Options On American Tower (AMT)?
American Tower (AMT) is a real estate investment trust or REIT. They operate as a wireless and broadcast communications infrastructure company.
They own about 50,000 communication sites primarily located in the US, India, Mexico, and Brazil. They make money by leasing antenna space to multiple tenants on each site.
Their largest customers in the US are AT&T (T), Sprint Nextel (S), Verizon Wireless (VZ), and T-Mobile.
AMT currently trades for $70.83 per share. The shares are up 40% from the 52-week low of $50.72 and they’ve recently pulled back 6% from their 52-week high of $75.62.
Is this an opportunity to buy call options on AMT as it surges higher? Or should you buy put options on AMT as it runs into resistance?
The bulls make a convincing argument…
It’s no secret smartphones and tablets are fast becoming the preferred way for consumers to access the internet. But in order for wireless companies to meet the growing demand, they must invest heavily in their wireless infrastructure.
In fact, the major wireless companies have made a point to compete for customers based on the size, reliability, and speed of their wireless networks.
Put simply, that’s great news for AMT.
Now that their AMT’s customers are locked in a heated competition over who has the best network, they’re undertaking massive long term commitments to invest in their networks. And that means more business for AMT.
At this point, AMT has a built in growing revenue stream with the agreement they already have in place. And there’s still more upside because of the rapid expansion of wireless networks in Brazil and India.
Last quarter alone, sales jumped 17%. And they’re expected to continue growing revenues at 18% this year.
But the bears have a compelling case as well…
American Tower may operate in a fast growing industry, but growth is slowing.
AMT should grow sales by 18% this year, 15% in 2013, and 10% in 2014. That’s not the type of trend growth investors are looking for.
And it’s likely one of the reasons AMT converted to a REIT structure on January 1, 2012. As a REIT, they get favorable tax benefits. But they also have to return 90% of their taxable income to investors in the form of a dividend.
The REIT structure should benefit long term income investors. AMT will be paying a solid dividend. But it could restrict the company’s growth.
AMT is already tied down with a heavy debt burden. And now they have to return 90% of their taxable income to investors in the form of a dividend. If they run into trouble refinancing their debts, they won’t have the capital they need for future growth.
What’s more, the stock is already expensive by many metrics. And that could spell trouble for AMT as investors cash out of this overpriced stock in the weeks ahead.
If you think the bulls are right, take a look at buying the AMT January 2013 $77.50 Call for around $0.70.
If you think the bears are right, take a look at buying the AMT January 2013 $62.15 Put for around $1.15.
Good Investing,
Corey Williams
Category: Call Or Put Options?
