EDITORS’ NOTE: Re/Code’s recent Sprint article had many in the industry discussing the viability of the tower model. Jennifer Fritzsche addressed it in yesterday’s Wells Fargo Securities Equity Research missive. Below is an excerpt that provides some perspective on the current and future health of the public tower companies.
“On the heels of an industry article claiming Sprint is finalizing network plans that will work around the large public tower companies, we have received several questions about what the future holds for each of the tower companies. While we do have some concerns about the general pushback by carriers to the historical structure of the tower model and price of amendments and escalations, the sector seems to be more than pricing in this risk.
“Specifically, the sector YTD 2016 is down -11 percent compared with S&P 500 -9 percent. In our view, valuation is attractive at current levels based on their historic price/AFFO per share and EV/EBITDA, and when compared against select specialty REITs.
“While a game of chicken is currently being played by some of the carriers versus the tower companies, we note the guidance of both Crown Castle International and SBA Communications (the two tower companies that have offered 2016 guidance) do not assume any significant uptick from Sprint and we believe a still fairly muted outlook from AT&T.
“That said, we believe the stocks are trading at a discount to their historical multiple and the REIT average (which is exhibiting less robust AFFO growth), more than reflect this outlook. Our favorite tower company continues to be American Tower. Despite current global concerns, we believe the geographic diversity of the model should serve it well during periods of carriers spending volatility.”
Jennifer Fritzsche is a Senior Analyst at Wells Fargo Securities