More Upside Seen for Cell Tower Giants Ahead of 5G Deployments

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If there is one part of the communications industry that many consumers tend to overlook, it is the cell and communications tower operators. At least until they lose their signal. SBA Communications Corp. (NASDAQ: SBAC) reported mixed earnings that looked a bit softer than expected on Monday, but analysts by and large call for more upside in SBA and from its two top rivals. What matters here now is that the cell towers are dividend payers, and combined the top three players have more than $110 billion in market value.

SBA reported a profit of $9.2 million in its second quarter, with net income of $0.08 per share and operating income of $0.19 per share. Wall Street expectations were a tad higher at $0.20 per share from operations. There is a reason the analysts were out in favor of SBA and some its rivals on Tuesday. The operator of communications towers showed a revenue number of $427.3 million in the second quarter. This beat expectations of about $425 million.

Also driving the upside for the tower operators was that SBA increased its full-year outlook and disclosed that it had repurchased a cumulative total of 1.9 million shares in the quarter and since the end of the second quarter.

JPMorgan came out the strongest in the lot, raising targets on all three major communications tower providers. SBA Communications was reiterated as Overweight and the JPMorgan price target was raised to $170 from $140.

JPMorgan also reiterated its Overweight rating on American Tower Corp. (NYSE: AMT) and raised its target price target to $165 from $145 in Tuesday’s call. Back on July 27, Merrill Lynch reiterated its Buy rating on American Tower and raised its price objective to $150 from $140. After American Tower’s earnings, Oppenheimer reiterated its Outperform rating and a higher $155 target. Jefferies had reiterated its Buy rating and $144 price target.

Crown Castle International Corp. (NYSE: CCI) was maintained as a Neutral rating at JPMorgan, but its target price was still raised to $110 from $100. On July 26, Merrill Lynch reiterated its Buy rating and $107 price objective on Crown Castle. On July 20, Jefferies reiterated its Buy rating and $110 price target.

Shares of SBA Communications saw other target hikes on Tuesday as well. Its stock was only up about 0.1% at $137.71 at midday on Tuesday, but here are some of the other positive analyst calls that were seen:

  • Barclays raised its target price to $150 from $148.
  • Merrill Lynch reiterated its Buy rating and $145 price objective.
  • Cowen raised its target price to $147 from $141.
  • Jefferies raised its target price from $150 to $159.
  • Stifel raised its target price to $160 from $148.
  • SunTrust Robinson Humphrey raised its target price from $150 to $154.

SBA Communications shares had been up about 33% so far in 2017, and the 52-week range is $95.66 to $140.38. SBA’s market cap is nearly $17 billion. Jeffrey Stoops, president and CEO of SBA Communications, also talked up the spending climate ahead of spectrum and 5G deployments in the quarters and years ahead. He said after the earnings report:

With substantial spectrum and 5G deployments on the horizon in both the U.S. and internationally, we expect customer demand to remain solid for years to come. Against that demand, we intend to continue to execute well and we expect to continue to favor allocating capital to portfolio growth and stock repurchases. We continue to remain on track to achieve our long term goal of $10 or more of AFFO per share in 2020.

The year-to-date gain of 29% for American Tower was with shares down five cents at $136.28. Its 52-week trading range is $99.72 to $139.50. American Tower has a market cap of almost $58 billion and a dividend yield of 1.85%.

Crown Castle shares were up six cents at $100.64 on Tuesday, in a 52-week range of $79.38 to $104.68. Its market cap is almost $37 billion. Its gain so far in 2017 was about 17%, and its yield is well above 3%.