It is early in the baseball season, and Chicago-based Wells Fargo Securities is already saying “wait until next year.” But they are not talking about the Cubs. It is the 5G Ramp.
With AFFO multiples at a two-year high (five-year high for American Tower), the tower sector rating was ready for a downgrade to Market Weight from Overweight. American Tower’s shares, in particular have been downgraded from outperform to market weight. However, the firm is still recommending Crown Castle.
The risk/reward strategy may not be working at the current valuations of low 20s X AFFO, according to the firm’s Communications Infrastructure & Telecom Services Equity note. And there is something else. Expected growth among the public tower companies in the first quarter has been more conservative than originally thought.
“Recent checks have indicated that while spending has continued, it has not realized the growth that was hoped for in 2019,” Jennifer Fritzsche, senior analyst, wrote. “We believe spending will ramp in 2020 but much has to be digested before this can be seen. We struggle to see near-term drivers for further multiple expansion from these levels.”
Among the near-term issues impacting wireless carrier spend, are shortfalls in the AT&T FirstNet/One Touch initiative and general Verizon tower spend. T-Mobile maintains its 600 MHZ coverage buildout, buy has slowed on the capacity site rollout because of the proposed Sprint merger.
Wells Fargo still believes the fundamentals in the tower sector are healthy in the future. But for now, 4G still rules.
“All contacts agree there is pent-up demand and movement will be seen and look for 2020 spend to be better than 2019,” Fritzsche wrote. “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.”