Analyst Looks Ahead and Back at the Tower Space

According to Nicholas “Saint Nick” Del Deo, Managing Director at market analyst MoffettNathanson, during a year when equities across the broader telecom landscape have been challenged, the performance of broader indexes, and communications infrastructure names have held up quite well.

“Early in the year, tower equities responded inversely to changes in benchmark rates, initially being hurt as they rose but then being helped as they fell,” Del Deo said. “Positive commentary regarding carrier leasing activity also acted as a tailwind, even if the benefits aren’t expected to really flow through into their P&Ls until 2022. In particular, the post-C-band auction analyst days hosted by Verizon, AT&T, and T-Mobile in mid-March gave investors comfort that they would charge ahead with deploying that spectrum rather than hold back in light of spending astronomical sums to acquire it,” he said.   

DISH Network has been busy, too, Del Deo said, to meet the network deployment commitments it made with the Department of Justice. But the big picture leasing narrative hasn’t changed since, he said, and it forms the backbone of the tower bull case headed into 2022 and beyond.

“The Big Three carriers and DISH are all spending at elevated levels to deploy 5G on a nationwide basis. The persistent ringing sounds residents of Boston, Houston, and Boca hear are the sound of the Towers’ cash registers. But the stocks got a bit knocked off track by a recent revival of macroeconomic worries – again, rising interest rates and inflation – and American Tower’s proposed $10B acquisition of CoreSite,” according to Del Deo.

On the M&A front, Del Deo said he feels American Tower’s Telxius deal earlier this year gave it a scaled European platform, but the puzzle pieces in that region haven’t been fully set into place. American Tower would certainly be in the running for any other assets that come to market, he said, with a potentially large price tag. 

“Never say never, but material M&A seems unlikely at Crown Castle. Instead, the question remains: will small cell bookings pick up after 5G-driven macrosite augmentations have wrapped? And if not, does that mean the company will once again be a buyer of its shares?” he asked. 

Overall, Del Deo said “The Towers” are more similar than they are different, but his preferred tower name headed into 2022 is SBA. Finding the company’s accounting and mix-adjusted valuation appears most appealing, Del Deo feels its domestic growth prospects aren’t constrained by MLA-driven smoothing or capacity rights. 

“American Tower’s stock price seems to have been sufficiently penalized for the CoreSite deal,” he said, “but we continue to think the market ascribes a valuation premium to its overseas assets greater than is warranted. Our view of Crown Castle’s stock is shaded by the lower quality of its bottom line results vs. peers and its high market-implied fiber valuation.”

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Analyst Looks Ahead and Back at the Tower Space