Analyst Downgrades Crown and American to Neutral as SBA Remains a “Buy”

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MoffettNathanson has maintained “Buy” ratings on each of the Big Three tower operators since initiating coverage of them three years ago. Many of their ratings are underpinned by a simple idea: own businesses with monopolistic attributes at discounts to fair value. Towers have historically fit that description. Domestic tower leasing, according to analyst Nick Del Deo, especially of towers with more “traditional” terms and attributes, is the most attractive business model in the broader telecom space.

“We’ve noted in our recent work that American Tower and Crown Castle were getting closer to our target prices,” Del Deo told Inside Towers, “whereas SBA traded at a steeper discount, so given the stock movements and financial results, it seemed like an appropriate next step to rejigger our ratings.”

MoffettNathanson has long expressed a preference for SBA, given its domestic tower skew, its focus on more attractive overseas markets, the quality of its “economic” EBITDA and AFFO relative to the reported numbers, and its capital allocation.

“It still looks attractive at current prices,” Del Deo said, “especially with growth picking up. American Tower and Crown Castle also have high quality businesses, but at current valuations we cannot continue to recommend the shares without stretching our valuation multiples beyond appropriate levels or without unduly favoring one over another.”

Del Deo said they’ve always harmonized metrics across the group and applied consistent multiples to each asset class to ensure they’re valuing each fairly, which has always weighed on their American Tower and Crown Castle valuations more than SBA’s.

“American Tower has closed in on our target price through strong operating results and corresponding stock performance,” Del Deo said. “In contrast, our expectations for Crown Castle have been a bit too rich, and after resetting them our target price falls several dollars. As such, we’re downgrading both American Tower and Crown Castle to Neutral. SBA is now our lone Buy-rated tower equity.”  Comments? Email us.

December 4, 2018