Raymond James Bullish Yet Downgrades Major Towercos

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Raymond James lowered its ratings on telecom tower companies, with the downgrades blamed primarily on valuation. The firm, however, said it remains bullish on the long-term fundamental drivers of the tower industry according to Benzinga.

American Tower and SBA Communications were downgraded from Strong Buy to Outperform, with a price target of $147 and $153, respectively and Crown Castle was downgraded from Outperform to Market Perform.

Raymond James Analyst Ric Prentiss said the RMZ REIT Index and the S&P 500 have generated year-to-date returns of two percent and 10 percent, respectively, compared to the 19 percent, 24 percent and 30 percent returns generated respectively by Crown Castle International Corp. (REIT) Benzinga reported.

The upside, according to the Raymond James report, pointed to an improving U.S. tower leasing environment and lower interest rates.

The Raymond James report gave four reasons for the improved sentiment toward the sector:

    • The building of the FirstNet network starting in late 2017, or early 2018.
    • Unlimited wireless plans becoming more prevalent
    • Increasing spend by Verizon and T-Mobile
    • Potential entry of a cable or large tech company like Amazon into the wireless industry.

 

On specific stocks, the firm said it maintains a positive rating on American Tower and SBA Communications, citing faster expected AFFO/share growth, its favorable risk/reward analysis, lower exposure to an Sprint-T-Mobile headline and active stock buyback programs Benzinga reported.

The Raymond James report said the towercos will benefit from T-Mobile’s 600 MHz rollout and if a Sprint and T-Mobile merger results in an expansion of rural infrastructure.

June 14, 2017

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