As the tower sector gets renewed attention from investment analysts, SBA Communications in particular is getting singled out for its asset mix.
In a note for investors Tuesday, Wells Fargo Securities analysts said they’re upgrading their ratings on American Tower and SBA Communications. “We believe the fundamentals of the tower sector get stronger, not weaker, on the other side of COVID,” wrote the team led by Jennifer Fritzsche.
“A number of tangible potential catalysts exist: higher traffic on the network, increased spend to adapt to the WFH phenomenon, the release of more spectrum to the market (both CBRS and C-Band), and the continued buildout of 5G architecture,” she wrote.
The rationale for upgrading the sector includes positive comments during checks with private tower companies and increased activity among non-traditional carriers. Plus, towers potentially can provide a distinct, relatively stable spot for REIT investors with higher adjusted funds from operations (AFFO) growth characteristics.
Wells Fargo’s price target for SBA is $305 per share; it’s currently trading in the $284 range. Their price target for American Tower is $260; it’s currently trading around $237. They also reiterated their rating on Crown Castle International, for which they have a price target of $165; it was trading Tuesday at about $149.
SBA, the smallest of the three by market cap, is Well Fargo’s favorite of the tower group given exposure to an “all macro” model. “While it has some small fiber and data center exposure, the overwhelming majority of SBAC’s revenue comes from its macro assets,” Fritzsche said, noting roughly 80% of SBA’s revenue is from the U.S.
Designated an essential service provider, SBA's field operations personnel are authorized to travel to and access all SBA and other providers' telecom facilities during the COVID-19 shutdown.
According to a letter (PDF) SBA President and CEO Jeffrey Stoops posted online, its personnel have been given Access Letters explaining the travel and access rights provided by SBA and the Department of Homeland Security in the U.S., and similar letters have been provided to its personnel in its international markets.
Wells Fargo also said Crown Castle’s macro portfolio should benefit from the wider trends. “We note CCI has the largest exposure to the TMUS portfolio having bought both the legacy TMUS and S towers. While small cell slowdown may be seen … we believe small cells will be a critical part of the 5G architecture and this spend will return in force on the other side of COVID,” Fritzsche wrote.
American Tower, with a similar sized macro tower portfolio in the U.S. to that of Crown, also is well positioned to benefit from current trends. About 44% of American Tower’s revenue comes from outside the U.S., according to the analysts.
The Wells Fargo team conducted a survey of about 15 of their private tower company contacts and found an increase in activity from non-traditional wireless carriers, namely wireless ISPs (WISPs). Specifically, 58% of the respondents indicated that they have seen more activity from these players in the wake of COVID-19. The WISP activity also has been driven by the allocation of more CAF grants to some players.
The bigger needle-mover from non-traditional carrier activity likely will be Dish Network, which is required to build a national wireless broadband network as part of the government’s remedy in the T-Mobile/Sprint merger, which closed last week.
“Channel checks indicate that DISH has been focused on getting MLA's signed with the 3 public tower cos and will then focus on the private tower operators,” Fritzsche wrote. In Dish’s effort to achieve coverage milestones in a timely matter, “we believe DISH will use more macros initially vs. small cells. By doing so, it is fair to assume it would be able to achieve the coverage parameters required under their FCC commitment in a faster way.”
‘Most appealing asset mix’
In a 50-page report for investors Tuesday, MoffettNathanson analysts noted their preference for SBA, which they upgraded to “Buy,” with a price target of $327, up from $262.
“Aside from having the most attractive valuation, SBA has the highest quality bottom line metrics, the most appealing asset mix, a capital allocation approach that aligns with our preferences, the greatest flexibility to organically de-lever should the need arise, and the cleanest outlook,” wrote MoffettNathanson senior analyst Nick Del Deo.
“American Tower and Crown Castle look more attractive than they have, but are not quite where they need to be to warrant upgrades. American Tower’s emerging market exposure and the low quality of Crown Castle’s numbers and fiber exposure restrain our enthusiasm. We raise our target prices to $241 and $163, respectively,” he wrote.