RBC Capital Markets has upgraded American Tower (NYSE: AMT) to outperform from sector perform, lifting its price target to $205 from a previous level. The Canadian bank's analyst Jonathan Atkin argues that the real estate investment trust (REIT) is positioned to deliver the strongest organic growth in the cell-tower sector through fiscal 2026, driven by its US tower portfolio and its CoreSite data center business.
Cell-tower REITs have faced a challenging environment as higher interest rates increase borrowing costs and often push investors toward safer yield alternatives, compressing valuations. American Tower, one of the largest owners of wireless communications infrastructure globally, has not been immune to these pressures. However, RBC's upgrade suggests that the company's underlying business fundamentals can overcome the macroeconomic headwinds.
What's Driving the Upgrade?
RBC's analysis points to two key growth engines. First, American Tower's US tower portfolio is expected to generate stronger "net organic" growth compared to its peers. This refers to the increase in revenue from existing towers after accounting for tenant additions, lease escalations, and any cancellations. Second, the CoreSite data center unit is gaining momentum, adding a second growth vector tied to cloud computing and artificial intelligence workloads, rather than solely relying on wireless carriers leasing space on towers.
The bank made only minor adjustments to its revenue forecasts, now projecting 2026 sales of $10.98 billion versus $10.95 billion previously, and keeping 2027 at $11.24 billion. However, RBC raised its adjusted funds from operations (AFFO) per share estimates for both 2026 and 2027. AFFO is a key metric for REITs because it represents the cash generated from operations after necessary capital expenditures, providing a clearer picture of the cash available to support dividends and debt payments.
This divergence between nearly flat revenue and higher AFFO per share implies that American Tower is expected to become more efficient, or that its interest and capital spending burden will be lighter than previously assumed. The upgrade comes as American Tower adjusts its customer mix, including ending a collocation agreement with EchoStar's DISH Wireless earlier in June.
What It Means for Investors
For REIT investors, AFFO per share often matters more than revenue because it is closer to the cash that can sustain dividends. In a higher-rate environment, the ability to generate more cash per share from roughly the same revenue stream can help a stock maintain its valuation multiple, rather than seeing it compress as investors demand higher yields.
RBC's $205 price target is effectively a bet that American Tower can deliver better cash generation than the market currently expects. If investors accept this view, the stock could hold up better than other tower REITs, especially as CoreSite benefits from demand tailwinds in cloud and AI, and US tower growth remains steady.
The broader market backdrop remains mixed. Treasury yields have dipped recently as oil prices eased and odds of a Federal Reserve rate hike shifted ahead of key jobs data, which could provide some relief for interest-rate-sensitive sectors like REITs. Meanwhile, Latin American markets have rallied as the US dollar retreated from a 13-month high, though American Tower's exposure to international markets, including Latin America, adds another layer of complexity to its outlook.
Investors will be watching for signs that CoreSite's momentum is accelerating and that the US tower portfolio can maintain its growth trajectory. The company's ability to navigate the higher-rate environment while improving cash generation will be key to justifying RBC's upgraded stance.
