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There’s no doubt that American Tower (AMT) is getting kind of pricy. Even after it beat Wall Street expectations for second quarter earnings. On August 3 the company reported second quarter earnings of 25 cents a share, five cents a share above Wall Street projections. Revenue climbed by 11% from the second quarter of 2009. At $469.9 million revenue came in about 1% ahead of expectations.

But the key metric for American Tower is price to cash flow. The company takes its cash flow and uses it to buy more cell phone towers (or to buy complete cell phone tower competitors). That in turn produces more cash flow, which American Tower uses to buy more towers.

(If you think that sounds like the financial model of a master limited partnership or a REIT (real estate investment trust), you’d be right. The company is thinking about putting some or all of its assets into a REIT structure, which passes through most pre-tax earnings back to investors. The timing looks like 2011 or 2012 depending on how quickly the company can put its net operating losses to work against profits.)

The current price to cash flow ratio at American Tower of 22.1 isn’t out of line with the company’s average over the last five years of 21 (the industry average, according to Morningstar is just 10.7), but the ratio is moving toward the top of the range set at 25.8 in 2006 and 26.2 in 2007. In 2004 the ratio was just 19 and in 2005 an even lower 17.5.

At these levels an investor is starting to price in much of the higher revenue growth that’s projected from the roll out of 4G cell phone networks in 2010 and 2011. I think it’s reasonable to project that EBITDA (earnings before interest, taxes, depreciation, and amortization) margins will increase in 2010 and 2011 as network operators increase their need for space on existing towers. Standard & Poor’s forecasts that free cash flow will grow to $789 million in 2010 and $975 million in 2011. That would be up from $641 million in 2009.

The problem is that the stock’s price already anticipates much of that good news. (Take a look at a chart of the stock, which shows the shares at the top of its Bollinger Band.) On the better than expected results in the second quarter I can get to a target price of $57 a share in 12 months, but that represents only a 10% gain in the stock’s price in a year from the current price. That’s not a bad return for a risk adverse investor—and I don’t think this stock is very risky at this point in the industry cycle—but it wouldn’t be enough to lead me to put new money to work in these shares. (For more on the short-term prospects for stocks see my post )

As of September 29, I’m putting a price target of $57 a share by September 2011 on American Tower.

Full disclosure: I don’t own shares of any company mentioned in this post in my personal portfolio.