The outlook for tower leasing over the coming years looks stronger than it has in quite some time, according to MoffettNathanson’s Nick Del Deo. AT&T, T-Mobile, and Verizon are all undertaking significant capacity augmentation projects, driven by 2.5 GHz (T-Mobile) and C-band (primarily AT&T and Verizon) deployments.
“Dish Network is undertaking the hard work that will ultimately make it the nation’s fourth national facilities-based wireless carrier,” Del Deo said. “Commentary from tower management teams is uniform in describing leasing activity as elevated, with positive implications for growth in the coming years. However, from a stock perspective, the trouble is everybody who cares about towers already knows this.”
Even after having sold off by roughly ten percentage points over the past month, Del Deo said “the Towers” continue to trade at multiples toward the upper end of their historical range, crimping the potential for investors to generate outsized returns predicated on the favorable leasing backdrop.
“In an environment like this,” he said, “we think it’s especially important to understand risks that may trim expected returns. Moreover, it’s important to think of valuations not just in absolute terms, but in the context of the market. Relative to SBA, American Tower and Crown Castle appear exposed to some multiple erosion risk – American Tower after examining its international business vs. comps and Crown Castle after considering its embedded fiber segment valuation.”
Del Deo said all are exposed to interest rate risk; while significant, past experiences suggest it may not be quite as steep as intuition suggests and implies the stocks are not as aggressively valued as their standalone multiples indicate. “After taking this all into account,” Del Deo said, “we continue to think SBA warrants a Buy rating and it remains our preferred tower name, but note that it does not offer outsized upside, in our view.”
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