American Tower shares were trading up more than 10% at one point on Thursday after Raymond James upgraded its recommendation on the stock from “market perform” to “outperform,” citing the tower sector’s resilience amid the coronavirus pandemic.
“We still think U.S. macro towers are the Best Business we have Ever seen,” wrote Raymond James & Associates analyst Ric Prentiss, who published his first report on the tower industry more than 21 years ago, titled “Deciphering the Communications Tower of Babel.”
While tower stocks are not immune to major market disruptions, the public tower company management teams through the years have learned some very valuable lessons from previous events, he said.
Tower stocks were hit extremely hard when the tech bubble burst in 2001-2002, for example. In fact, some tower companies went bankrupt during that time while others had a very “long, L-shaped recovery,” especially versus the S&P 500.
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The COVID-19 pandemic has driven the S&P 500 down significantly, but tower stocks are still in line to be slightly ahead of April 2019 levels, according to Prentiss.
“We believe this performance is related to the excitement of 5G being deployed,” as well as the T-Mobile/Sprint deal poised to close. The analyst team is highly confident that the dividends/share in tower companies, including Crown Castle International and SBA Communications, are safe and likely to keep increasing at past rates.
On a day of gains throughout the markets, American Tower shares were trading at $223 on the NYSE on Thursday afternoon. Crown Castle also was up more than 10%, to about $141, while SBA was up more than 7%, to about $261.
Historical perspective
“Market volatility has turned tower stocks into pogo sticks,” Prentiss wrote, referencing a chart with up-and-down squiggly lines representing prices over the past 15 years.
U.S. tower leasing activity is expected to ramp with the expected closure of the T-Mobile/Sprint deal, CBRS and C-band spectrum auctions and the rollout of 5G networks. Even as the U.S. deals with the COVID-19 pandemic, “we expect these trends will keep the Big 4 (AT&T, Sprint, T-Mobile and Verizon) carrier wireless capex in the ~$30B range, especially as broadband and wireless connectivity become even more important.”
Of course, the “wild card” will be the timing of the funding and deployment of the Dish Network greenfield 5G network. But the analysts have not assumed any leasing contributions from Dish in 2020 and they expect a ramp-up in 2021 and 2022 as it builds to become the new No. 4 nationwide, facilities-based carrier. Dish also has agreed to let AT&T and T-Mobile use some of its unbuilt spectrum for free for a period of 60 days to help provide wireless capacity during this time of need, especially in rural areas.
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“So there might be some slight delays in the DISH 2021 plan, but there may also be some hope for a positive resolution of the DE [designated entity] spectrum issue with the FCC,” which last week authorized Verizon to use the Dish-affiliated DE spectrum for 60 days, according to Prentiss. “We noted that last week T-Mobile highlighted its financing is still in place, and the company is ready to close the merger with Sprint in 2Q20,” which could happen as soon as April 1.
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Plus, the commitments that New T-Mobile made to help get the deal approved by the FCC, Department of Justice and states should also help the country deal with the social distancing, school closings and other economic impacts of battling the spread of COVID-10, Prentiss wrote.
“In fact, wireless connectivity is a critical lifeline that fits somewhere on the Maslow hierarchy close to satisfying physiological needs (e.g., food/air/shelter) and safety. All of which makes us even more comfortable that tower leasing will ramp from a slow start in 2020 into 2021 and 2022 and beyond,” he stated.