Non-Merger Pushes “Buy” Button on Tower Stocks

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While shares of tower stocks keep climbing on the dissolution of the ballyhooed Sprint/T-Mobile merger, the non-event has had the opposite effect on carrier stocks. For the immediate future, it’s great to be a tower company.

“Shares climbed further Tuesday after earnings reports from SBA and American Tower. Investors had bid up shares of cell tower stocks on news of the deal’s chances dwindling because the combined wireless company would have been expected to cut costs by reducing the number of cell tower sites,” Nick Del Deo, analyst at MoffettNathanson Research told Reuters.

“The market interpreted the lower odds of a deal as being positive for towers because of lower risk of cell site decommissionings,” Del Deo said. “They would decommission tens of thousands of cell sites if they were to get together.” 

Cell-tower stocks already were surging in 2017: Crown Castle shares have climbed 23 percent, American Tower has soared 36 percent, while SBA Communications has minted a gain of more than 50 percent, Reuters reported.

This contrasts sharply with the dour performance of telecommunications shares such as Verizon (VZ.N), down 10 percent, and AT&T (T.N), which has fallen 20 percent this year, amid concerns about fierce competition.

Cell-tower growth prospects have improved as carriers seek to deploy more spectrum bands to improve their networks, which would require more hardware to be built on the towers, says RBC Capital Markets analyst Jonathan Atkin. “Towers are more a play on wireless network spending, they’re not a play on carriers themselves,” Atkin told Reuters.

The cell-tower stocks struggled in the wake of the U.S. election of President Donald Trump last November. For example, expectations that Trump’s agenda would lead to higher inflation weighed because the cell tower companies operate under long-term contracts, Del Deo said, but such concerns have faded somewhat, according to Reuters.

The fear was “if inflation went up a whole bunch they wouldn’t be able to reprice their contracts for a long period of time,” Del Deo said.

November 2, 2017 

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