Is American Tower (AMT) a Buy at a 36.8% DCF Discount, Despite Near-Term Volatility?

The valuation of American Tower Corporation (AMT) has sparked intense debate among investors, with recent discounted cash flow (DCF) models suggesting the stock trades at a significant discount to intrinsic value. As of December 29, 2025, AMT closed at $175.83, while DCF analyses from multiple sources estimate intrinsic values ranging from $105.55 to $268.64 per share, with the most consistent estimates clustering around a 36-37% discount to the current price. This raises a critical question: Is AMT a compelling buy at this valuation, or does near-term volatility mask deeper risks?

Valuation Mispricing: A DCF-Driven Case for Undervaluation

The DCF models highlight a stark disconnect between AMT's market price and its projected cash flow potential. Simply Wall St's analysis, for instance, calculates an intrinsic value of $268.64, implying a 37.3% discount to the January 2026 price of $168.51. Similarly, Sahm Capital's $261.43 estimate suggests a 31.6% discount to the current price. These figures are bolstered by AMT's robust financial performance in Q3 2025, where revenue grew 7.7% year-over-year to $2.72 billion, and adjusted EBITDA rose 7.6% to $1.82 billion.

The divergence between DCF valuations and the market price may stem from short-term headwinds. Free cash flow (FCF) dipped 5.1% year-over-year to $984 million in Q3 2025, and legal disputes with AT&T Mexico and DISH could temporarily reduce quarterly revenue by $8–10 million. However, these issues appear manageable given AMT's strong liquidity ($10.7 billion) and net leverage of 4.9x EBITDA, the lowest among tower peers.

Long-Term Income Potential: Dividend Sustainability and Growth Catalysts

AMT's appeal as an income stock hinges on its dividend sustainability and long-term growth trajectory. The company has raised dividends for 15 consecutive years, with a current yield of 3.99% and a payout ratio of 107.18% . While the payout ratio exceeds 100%, Wall Street analysts project a steady increase in dividends from $6.80 per share in 2025 to $9.10 per share by 2030, reflecting confidence in AFFO growth.

Growth drivers are equally compelling. AMT has upgraded 75% of its towers with 5G equipment, and its data center segment grew 14% year-over-year, fueled by hybrid cloud and AI demand. Management also emphasized "network densification" as a long-term opportunity, with full-year 2025 AFFO per share growth projected at 7%. These initiatives align with a broader industry trend: as mobile data consumption accelerates, tower operators like AMT stand to benefit from recurring revenue streams and margin stability.

Risks and Market Sentiment

Despite the bullish fundamentals, near-term volatility persists. The stock fell 2.57% in pre-market trading following Q3 earnings, despite beating EPS estimates by 68.48%. This reaction underscores investor skepticism about AMT's ability to sustain growth in a high-interest-rate environment. Additionally, the P/E ratio of 35.4x and Price/Book of 22.7x are elevated relative to historical averages, raising questions about whether the market is overcorrecting.

However, DCF models counter this skepticism. A $261.46 fair value estimate implies a 33% upside from the current price, assuming conservative growth assumptions (e.g., 7.3% over 10 years). Even the most bearish DCF model, which values AMT at $113.17, assumes a 35% overvaluation-a scenario that would require a collapse in cash flow growth or a dramatic shift in discount rates.

Conclusion: A Buy for Long-Term Investors

The 36.8% DCF discount, combined with AMT's durable cash flow, dividend growth potential, and strategic positioning in the 5G and data center markets, makes a compelling case for a buy rating. While near-term volatility and legal risks warrant caution, these factors appear to be priced into the stock. For investors with a five- to ten-year horizon, AMT offers a rare combination of undervaluation and long-term income potential.

As the CEO noted in the Q3 earnings call, "The long-term growth algorithm remains intact." With disciplined capital allocation, a strong balance sheet, and a clear path to 5G monetization, AMT's valuation mispricing may soon correct-provided the market renews its faith in the company's enduring value.