The likelihood of a merger between T-Mobile and Sprint and a slower-than-expected rollout of FirstNet could spell trouble in the coming weeks for Crown Castle and other carriers, according to Wells Fargo Securities.
But that could signal an opportunity for investors looking to buy low.
“We got a lot of questions on our tower conference findings last week,” Jennifer Fritzsche of Wells Fargo wrote in a note to investors Sunday. “The question of WHEN FirstNet spend will begin is one top of mind for many. Under original plans Phase I (which had included a plan to touch 15,111 sites) was supposed to be complete by Fall of 2018. However, given our strong sense is limited to no work orders have come to the tower cos as of yet on this initiative, that does seem to be a fairly aggressive timeline, in our view. Given this—we believe it could be optimistic to think Crown Castle’s 2018 guidance (which it is to give on its Q3 call) could include any additional upside to FirstNet.”
Crown Castle is scheduled to announce its latest quarterly earnings next week.
Meanwhile, T-Mobile and Sprint continue to inch closer to a merger that would significantly overhaul the U.S. wireless market, consolidating into a segment with three major service providers of roughly similar size. Analysts have expressed concerns that such consolidation would likely result in lower overall wireless capex spending as the two carriers integrate their networks, but Fritzsche said some industry insiders say the tie-up could actually prove beneficial for tower companies.
“When asked about what could be the impact of a Sprint/T-Mobile merger we heard mixed views,” she wrote. “Some saw it as a positive as a stronger player would emerge with much ‘naked’ spectrum. Others said it could create a significant slowdown as was seen when AT&T/T-Mobile thought they were merging in 2011 and Sprint and Nextel merged in 2005.”
Regardless, investors should consider pouncing if tower stocks turn south based on any near-term outlook, Fritzsche suggested.
“While we remain positive on the sector and see more tailwinds than headwinds in 2018, we believe investors may get a better entry point over the next few weeks given some near-term headlines,” she wrote. “(W)e would be a buyer on any significant pull-back in the group as we continue to numerous potential catalysts in 2018.”