U.S. Dollar and Carrier Capex Weaken Tower StocksComments Off on U.S. Dollar and Carrier Capex Weaken Tower Stocks
Kevin Smithen and Will Clayton at Macquarie Securities noted that they have fielded a number of questions recently regarding the weak performance of the tower stocks. The two analysts explained that given the strong absolute and relative performance of American Tower and SBA, they’re not surprised by the year-to-date performance of these stocks in the context of rate hike fears, a rapidly strengthening dollar (especially vs. the Brazil Real), and concerns of capex plans at AT&T and Sprint, as well as high multiples paid for recent deals. “We are continuing to gain confidence in our 2016 U.S. organic revenue ‘reacceleration’ thesis and believe that while near-term catalysts may be lacking, the sector is likely to end the year sharply higher on anticipation of a better 2016,” Smithen and Clayton wrote. “Given what we heard from Verizon and network engineers and consultants at PCIA, we are a little bit surprised that AMT and SBAC are not articulating their small cells strategies more aggressively. While we do not think that small cells will cannibalize macro demand, we do think that having small cells to support C-RAN, 3.5GHz and 5GHz deployments, especially for industry leader VZ, will be important for maintaining U.S. organic growth rates above 6% long-term,” Smithen and Clayton said. When it comes to Sprint and their capex budget, Smithen and Clayton believe that SoftBank has signed off on Sprint’s network plans, but they hope to hear more about the specifics during their visit next week. “We feel we are most of the way through the multiple compression stage of towers as EV/EBITDA multiples are now ~16x 2016 for AMT & CCI vs trough levels of ~15x. We think clarity on Sprint’s plans and perhaps DISH over the next few weeks could begin to reignite interest in the space. We prefer CCI and AMT over SBAC but are warming up to SBAC at current levels,” the analysts wrote.