According to Eric Luebchow, CFA Senior Analyst, Vice President – Equity Research at Wells Fargo Securities, LLC, the three public tower company stocks rebounded toward the end of Q1 and into early Q2 after a choppy start to the year. Luebchow said there were concerns about wireless carrier activity being delayed as a result of the capital required to fund the carriers’ C-band spectrum licenses. “But they were partially quelled on the heels of carrier analyst days when management teams doubled down on the importance of building out their mid-band 5G networks as soon as possible. The towercos all produced solid Q1’21 results and increased 2021 guidance,” he said.
While still early in the year, most of Wells Fargo’s focus has turned to 2022 growth rates and the puts and takes to each of the respective tower companies. Luebchow said they continue to favor SBAC of the three, and believe it is best positioned to (1) benefit from the next wave of carrier deployments, (2) outpace its current guidance, and (3) accelerate yr/yr growth rates each year from 2021 through 2023.
“Tower stocks bounced back, somewhat, in Q1 2021,” he said, “after materially underperforming in Q4 2020.” The analyst’s research showed, on a weighted average basis, the towers gained +5.9 percent in Q1 (vs. S&P500 +5.8 percent), materially improved from Q4 when they declined -7.1 percent (vs. S&P500 +11.1 percent). TTM ending Q1’21, the towers grew +17.6 percent on a weighted average basis (vs. S&P500 +60.8 percent over the same period).
Luebchow and his team have written about how the tower sector underperformed in 2020 on a relative basis as concerns about carrier activity coupled with increasing interest rates pressured the stocks.
“We believe part of the rebound in Q1’21 reflects investors coming back to the story after the companies reiterated catalysts from U.S. carrier deployments plus increased 2021 guidance from all three companies,” he said.
All three tower companies increased the midpoint of their 2021 guides for Adjusted EBITDA and AFFO/share along with their Q1 results, Luebchow said.
“There is differing noise amongst the three towercos on the top line and what drove the increases, but they increased nonetheless.” He broke out the “Big Three” as follows:
- AMT increased the midpoint of EBITDA and AFFO, largely from an increase in services contribution versus prior expectations, but revenue guidance was reduced as a result of FX headwinds.
- CCI increased its guide from a combination of (a) greater straight-line revenue associated with its VZ MLA, (b) increased services contribution, and (c) net benefit from refinancing activity below the line.
- SBAC increased its guide from (a) its recently announced VZ MLA, and (b) greater leasing activity than expected.
- Midpoints of 2021E AFFO/share growth y/y now stand at +9 percent, +11 percent, and +10 percent for AMT, CCI and SBAC (up from +8.5 percent, +10 percent, and +8.2 percent percent prior, respectively).
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