Towers. There used to be substantive controversies regarding the names – like, is tower leasing a good business? – that led to valuations almost always being materially below reasonable estimates of fair value.
Today, most TMT [technology, media and telecom] investors embrace the view that tower leasing is the “best business ever,” or at least an excellent one. We believe tower leasing is an outstanding business, the best in the broader telecom space… but it gets harder to come up with reasons to support an Outperform thesis when the market basically prices the stocks with an Outperform thesis. Our revised price targets suggest the names are currently modestly undervalued.
It feels almost unnatural to have Market Perform ratings on all three tower names. However, as we look out over the coming year, there are reasons to think more interesting openings may arise.
SBA strikes us as the best positioned in the group for 2023, based on its leasing dynamics (others rely on holistic master lease agreements while SBA’s deal-by-deal approach can lead to outperformance in strong leasing environments) and a favorable debt maturity profile. But carrier leasing seems set to moderate in 2024/2025, concerns regarding DISH Network’s (DISH, MP, Moffett) staying power could become more pronounced, and SBA’s shorter average debt maturity profile could start to cut the other way. These stocks often move on changes in growth rates, and the market oftentimes over-extrapolates such changes, so it wouldn’t surprise us if a more appealing entry point arises.
American Tower’s and Crown Castle’s gross growth rates are likely to be steadier, but our 2023 AFFO per share forecast for American Tower is about three percent below consensus, and Crown Castle has already shared its 2023 outlook.
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