5 Telecom Picks for 2012

NEW YORK ( TheStreet) -- In the current market volatility, telecom stocks are the flavor of the month as nervous investors, starved of yields, are seeking defensive investments to endure the turmoil roiling the global economy. According to Fitch Ratings, the U.S. telecom sector is likely to see revenue growth of 3% to 4% in 2012, powered by spending on 4G wireless networks, enhanced build-out of fiber-to-cell sites and the increasing availability of wire-line broadband.

Pyramid Research pegs total service revenue for the global telecom services market at $1.7 trillion, or 2.4% of global GDP in 2012.

Based on average estimates of analysts polled by Bloomberg, these five stocks have potential upsides ranging from 11% to 94%, with average buy and average hold guidance of 75% and 20%, respectively.

The stocks are listed in ascending order of upside potential.

5. American Tower ( AMT) has over 40,000 broadcast and wireless communications sites in the U.S., Brazil, Chile, Colombia, Ghana, India, Mexico, Peru and South Africa.

Of the 23 analysts covering the stock, 91% recommend a buy and 4% suggest a hold. Analysts' average 12-month price target for the stock is $65.35, about 11.5% higher than the current price, according to Bloomberg.

For the third quarter of fiscal 2011, AMT reported total revenue of $630.4 million, an increase of 22.8%. Total rental and management revenue increased 23% to $614.8 million. Adjusted EBITDA rose 14.5% to $400.6 million, and operating income grew 7% to $228.3 million.

Revenue from the company's international rental and management division amplified 78.9% to $178 million, or 28% of total revenue. Furthermore, gross margin of the division increased 61.4% to $113.2 million, while operating profit improved 60.2% to $91.5 million.

American Tower recently announced a definitive agreement with MTN Group for establishing a new joint venture tower company in Uganda, which will acquire about 1,000 existing tower sites from MTN Group's operating subsidiary in Uganda for over $175 million. American Tower will be the major shareholder of ATC Uganda with a 51% holding. The transaction also involves ATC Uganda constructing 280 tower sites for MTN Uganda over the next three years.

For fiscal 2011, the company expects adjusted EBITDA of $1.58 billion to $1.60 billion.

4. SBA Communications ( SBAC) is one of the largest independent tower owners in the U.S. and one of the largest providers of professional site development services to companies in the wireless telecommunications industry. It leases antenna space on more than 5,400 towers and other structures.

Of the 20 analysts covering the stock, 70% recommend a buy and 25% suggest a hold. The stock's average 12-month price target is $48.56, or 19.6% above the current price, according a Bloomberg consensus.

For 2012 third quarter, the company recorded revenue of $175.5 million, an increase of 10.7% from the same period last year. Site-leasing revenue stood at $154.5 million, up 13.9%, accounting for 97.5% of total operating profit in the third quarter of 2011. Operating profit margin for the segment was 14.8% in the third quarter of 2011, compared to 11.7% in the year-earlier period, expanding 310 basis points.

In the third quarter of 2011, the company purchased 82 towers and rights to two additional communication sites for $42.2 million. It also built 119 towers during the quarter. In addition, the company spent $8.6 million to purchase land and easements and to extend lease terms with respect to land underlying its towers.

The company's initial 2012 outlook includes 9% organic leasing revenue growth in owned towers, new tower construction in the U.S. and international markets totaling 390 to 410 towers.

3. Crown Castle ( CCI) operates towers and other infrastructure for wireless communications. It offers wireless communications coverage to 91 of the top 100 U.S. markets and the entire Australian population. It has more than 22,000 and about 1,600 wireless communication sites in the U.S. and Australia, respectively.

Of the 21 analysts covering the stock, 71% recommend a buy and 23% suggest a hold. The stock's average 12-month price target is $52.24, or 20.8% above the current price, according to a Bloomberg survey.

Total revenue for the third quarter of fiscal year 2011 was $514 million, up 7% from $482 million in the same period prior year. Site rental revenue for the quarter increased 7% to $469 million from the same period prior year. Adjusted EBITDA for the quarter increased $26 million, or 9%, to $332 million.

For the fourth quarter, the company estimates net income per diluted share in the range of 12 to 21 cents. Crown Castle anticipates site rental revenue growth of approximately $90 million for fiscal year 2012, based on new leasing activity in the form of installations and modifications to existing installations. Meanwhile, net income per diluted share is seen in the range of 57 to 88 cents as compared to the estimated 48 to 60 cents for the full year 2011.

2. Virgin Media ( VMED) is involved in the entertainment and communications business. It is the first provider of broadband, TV, mobile phone and home-phone services in the UK.

Of the 22 analysts covering the stock, 73% recommend a buy and 18% rate a hold. The stock's average 12-month price target is $33.75, about 59.0% higher than the current price, according to a Bloomberg consensus.

For 2011 third quarter, the company reported revenue of GBP 1.0 billion, an increase of 2.2% compared to the same quarter in fiscal 2010 and up 3.3% for the first nine months of the financial year. Gross margin for the quarter increased 2.7% to $935.7 million.

For the quarter, new subscriptions in the superfast broadband category grew 54% and continued growth in average revenue per user for its cable operations was up 3.2% to $74.9.

Virgin Media recently released a major new update of its Virgin Media Security software suite, offering customers the latest anti-malware technology. The new software protects computers from viruses, spyware and 'phishing' scams and includes an enhanced suite of parental controls. The company is the first internet service provider in the U.K. to provide security software free of charge to every customer.

1. NII Holdings ( NIHD) offers wireless communication services under the brand name Nextel through operating subsidiaries located in selected Latin American markets, with key operations in Mexico, Brazil, Argentina, Peru and Chile.

Of the 20 analysts covering the stock, 70% recommend buying and 30% suggest a hold. The stock' average 12-month price target is $39.30, about 94.3% higher than the current price, a Bloomberg consensus shows.

For 2011 third quarter, NII recorded operating revenue of $1.75 billion, up 21% compared to the same quarter prior year, and consolidated operating income before depreciation and amortization of $381 million, up 5%.

During the quarter, the company added 433,000 new subscribers to its network, bringing its total subscriber base to over 10.2 million, up 19% compared to the subscriber base in September 2010. Churn rate for the quarter stood at 1.78% as compared to 1.64% in the year ago quarter.

At the end of September, NIII Holdings revealed that it has launched its "Push-to-Talk" service on the W-CDMA platform in Peru. It further added that it will continue its progress on the 3G network deployments in Brazil, Mexico and Chile.

For 2011, the company estimates net subscriber additions of almost 1.6 million. Meanwhile, consolidated revenues are seen at $6.8 billion while consolidated operating income before depreciation and amortization is seen at $1.6 billion. Besides, it estimates capital expenditures for the year to come in below the earlier estimated $1.7 billion.

>>To see these stocks in action, visit the 5 Telecom Picks for 2012 portfolio on Stockpickr.

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