Shares of the major U.S. carriers have increased in value in advance of Donald Trump’s administration, analysts at Cowen and Company noted Friday ahead of the inauguration. But tower companies also have a bright future even if they remain “everyone’s punching bag,” the firm said.
Investors appear to be betting that Trump’s presidency will result in lower corporate taxes and less regulation in the telecom industry. Shares of Verizon and AT&T have reversed downward trends since the election, Cowen analysts observed, and shares of T-Mobile and Sprint have continued to rise in anticipation of a potential tie-up between the two smaller carriers.
But the prospect of consolidation among carriers has weighed down the stocks of tower companies in a market that was already facing headwinds.
“While the four wireless carriers have seen Trump-related strength, the towers have been hit by concerns over rising interest rates and even more so by concerns over the potential merger of Sprint/T-Mobile,” Cowen analysts wrote. “At the same time the sector also continues to be dogged by concerns regarding ongoing carrier pushback on pricing, historically low domestic leasing, and company-specific situations (ex: acquired network churn at SBA Communications). The sheer amount of concerns leads us to believe that 4Q16 earnings will not be a catalyst despite what we think will be in line or slightly better than expected results/guidance.”
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Indeed, while lighter telecom regulation under Trump is highly likely, increased consolidation is no certainty. Cowen said the chances of a T-Mobile/Sprint merger is “low,” and BTIG Research last month pegged the odds of a tie-up at less than 20 percent. And even if such a marriage occurred, it may not threaten tower companies as much as some fear because both carriers have large customer bases that drive huge amounts of traffic.
Meanwhile, there are several reasons to believe the tower market is positioned to see significant growth in the not-too-distant future. FirstNet could be deployed as soon as late this year or early next year, Cowen analysts said, and a new carrier—perhaps a cable company—could try to elbow its way into the market. And commercial 5G deployments are slated to come to market in the next few years.
“All said, we urge patience for investors and believe while the stocks are unlikely to see meaningful upside over the next few months, that momentum should improve in 2H17 and heading into 2018 and that current prices offer good entry points for long-term investors,” according to Cowen.