MoffettNathanson raised its target prices across the board for the three biggest tower companies in the U.S.
The tower sector was shaken in the wake of the election of Donald Trump as investors feared potential consolidation among carriers could lessen demand for macrocells. Shares have rebounded over the last few months, but American Tower, Crown Castle and SBA Communications have still failed to keep pace with the S&P 500 since Election Day, Nick Del Deo wrote in a research note sent to investors this morning.
Carrier consolidation is still a concern, MoffettNathanson acknowledged, but there are several reasons to be bullish about tower companies.
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“To be sure, the odds of a T-Mobile/Sprint deal have to be judged significantly higher now than they were before the election, which dings the warranted values of the shares in a then-and-now comparison. In that sense one could argue that they’ve merely traded in-line with the market, albeit with a gut-wrenching path in between,” Del Deo wrote.
“If anything, we’ve had several long-sought catalysts start to play out or be increasingly recognized by the market: FirstNet, AWS-3/WCS deployments in sight, promising 2017 guidance, etc.,” he continued. “We think towers remain attractive opportunities at current levels, but there are certainly new puts and takes to consider.”
Del Deo echoed the sentiments of UBS, which predicted in February that U.S. wireless carriers will spend a total of $31 billion on their networks this year, marking the first year of growth after three years of declines. Another reason for optimism in the tower segment is the reemergence of unlimited data plans, which is expected to drive an increase in traffic on mobile networks.
“Domestic tower leasing is suddenly exciting again,” Del Deo wrote. “The combination of well-received 2017 outlooks and the implications of FirstNet and the return of unlimited data plans at Verizon have helped to propel the shares of the group. We’re obviously happy with this turn of events, but would caution investors against setting themselves up for disappointment down the road.”
MoffettNathanson increased its target price for American Tower to $140 from $127; it raised Crown Castle’s target to $109 from $103; and SBA’s target price jumped to $159 from $141. The firm maintained buy ratings on all three stocks but said SBA remains its preferred pick.