Wireless Tower Companies Remain A Bullish Investment Opportunity

Walter Piecyk of BTIG remains bullish on the investment opportunity of wireless tower companies by reiterating the Buy ratings on American Tower Corp AMT and SBA Communications Corporation SBAC.

“Stable growth in a high margin, low capital intensive business should still be attractive to investors, even in an uncertain interest rate environment,” Piecyk wrote in a note.

Though the analyst believes the consolidation of wireless operators would be a negative, he sees a lesser likelihood of M&A in the sector.

American Tower

Piecyk believes American Tower offers the fastest growth in domestic tower leasing revenue due to its low churn. In 2010, the company signed a 10-year master lease agreement (MLA) with Sprint Corp S that limited the impact of iDEN churn.

SBA

Meanwhile, the analyst noted that SBA's gross tower leasing growth rate is the highest, but it will still be impacted by about $50 million of churn from Metro, Leap and Clearwire over the next three years.

On the positive side, Piecyk highlighted that SBA's escalators and new activity are not as pressured by large-sale leaseback transactions like its peers. Further, SBA's superior margins surpass its peers as it is under-indexed to carrier-built towers.

The analyst raised the price target of SBA to $145, while trimming the target of American Tower by $3 to $137.

Crown Castle

However, Piecyk said Crown Castle International Corp CCI's domestic tower revenue growth trails its peers, but its willingness to invest in fiber will lift its growth rates. The analyst maintained his Neutral rating on Crown Castle, as the stock is trading at only 4.7 percent discount to estimated fair value of $91.50.

The Sector

On the sector front, Piecyk expects continued decline in new tower leasing activity, which is the post-paid phone net adds of the tower industry.

“Tower bulls would argue that the decline in new leasing activity is already factored into analyst models, but this is driven by AT&T's drop in activity not the risk of small cells,” Piecyk added.