Some investors continue to harbor concerns about the worldwide tower market, but American Tower remains an attractive investment entering the new year, according to Deutsche Bank Markets Research.
Deutsche Bank recently hosted an investor meeting with American Tower CFO, analysts said in a recent note, and came away viewing the stock “as a top idea heading into 2017.” And some of that optimism stems from predicted growth in the U.S. market beginning in the second half of next year as carriers begin to leverage new spectrum.
“Current trends remain stable at just under 6 percent organic billings growth, though we believe numerous ‘spectrum build catalysts’ are likely to help reaccelerate growth in 2H17/2018 (AWS-3, WCS, FirstNet near-term, and Dish/Broadcast spectrum, 5G in suburban markets long-term,” the analysts wrote. “American Tower still sees better returns via indoor DAS (relative to small cells), citing 1.2 to 1.3 tenants per node and ~40 percent margins in the latter.”
The analysts also cited American Tower’s worldwide scale, which allows the company to do business with a broad range of carriers while minimizing costs. That’s a particularly powerful weapon in emerging markets such as India, Deutsche Bank said, which has a massive population but where both smartphone and LTE penetration rates are far lower than in more mature markets.
The U.S.-based tower company spent $1.2 billion last fall to take a 51 percent stake in Viom, an Indian counterpart.
“India was a big area of focus internationally, with American Tower bullish on the longer-term growth prospects,” according to the analysts. “Now at appropriate scale post the Viom deal, we believe there is a greater focus near-term on integration with the legacy American Tower portfolio; that said, we still believe American Tower may be opportunistic with inorganic growth here, especially as additional M&A opportunities are likely to surface (carriers monetizing towers in a more competitive marketplace.”
Deutsche Bank didn’t address fears that the U.S. wireless market may see significant consolidation under Donald Trump’s administration, however, as federal authorities display a lighter regulatory touch. Any significant M&A activity in the space would almost surely have a negative impact on tower companies, likely lowering the number of major U.S. operators to three from four.