High Flying Tower Market Slows Its Roll

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Shares of American Tower (NYSE:AMT) opened 1.2 percent lower premarket yesterday after Wells Fargo Securities downgraded them to Market Perform from Outperform. AMT shares, however, are up 22.7 percent in the past three months and up 36.1 percent over the past six.

“Our tower dinner and data center broker events last week, seemed to take a bit of air out of the balloons for Q1 strength for both of these sectors,” said Jennifer Fritzsche, Senior Analyst, Wells Fargo Securities. “Our new price target on AMT is $196. The only tower stock we now are recommending is CCI; raising price target to $142. The towers peers trade at 23.6x 2019E AFFO and 21.9x 2020E AFFO, by our estimates. The multiples continue to push and set recent peak levels. Each of the tower stocks are trading at forward year AFFO multiples are the highest we have seen since 2017 (with AMT’s multiple at a 5-yr high),” she said.

Fritzsche said recent checks have indicated that while spending has continued, it has not realized the growth that was hoped for in 2019. She believes spending will ramp in 2020 but much has to be digested before this can be seen. As a result, she believes the setup for tower stocks should be viewed with a more conservative lens as her analysts struggle to see near-term drivers for further multiple expansion from these levels.

“Following recent checks with private towerco executives as well as contacts in the services industry, we believe there are near-term issues impacting wireless carrier spend,” Fritzsche said. “AT&T spending has reportedly been less than hoped with its One Touch initiative. Verizon has been ‘taking a breath,’ where capital is being deployed in different ways (i.e.: small cells, fiber, etc.) but internal decision makers have been changing given the company’s voluntary severance plans. T-Mobile has remained busy with 600 MHZ coverage sites but slowed a bit on capacity sites (given Sprint merger). All contacts agree there is pent-up demand and movement will be seen, and look for 2020 spend to be better than 2019,” she said.

While Frtizsche and her team of analysts continue to believe towers will represent the “core” in 5G and are firmly planted in the 5G conversation, the reality is, they believe we are in the early (way early!) innings of a true 5G infrastructure build.

“This has been confirmed by many of our contacts in the network, fiber and densification space. We believe most of the spending that the carriers are doing today with the macro tower players are more centered on 4G initiatives than anything related to 5G,” she said.

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April 16, 2019         

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