If any area has seen consistent growth over the past 20 years, it is the telecom infrastructure arena, and you don’t need to be a Wall Street analyst to see why. Just by looking around you see countless people either talking on their mobile phone via wireless from a nearby tower or looking up some piece of information that is stored on a server at a data center. The good news for investors is that the demand and growth should continue.
A new Goldman Sachs research report focuses on the analysts’ two favored tower stocks and the top pick in the data center arena. Citing outperformance in the second quarter, the Goldman Sachs team had this to say about the sector prior to earnings releases:
Following recent outperformance in tower and data center stocks, we find that sentiment remains positive on the telecom infrastructure space (based on our conversations with investors), ahead of second-quarter 2021 results. For towers, we believe that investors will focus on tower operators’ opportunity to accelerate their gross domestic organic growth in the second half of 2021 and beyond. For data centers, we expect investors to focus on whether record hyperscale and retail colocation bookings will persist. In this note, we address key questions and debates related to these themes and highlight key investor areas of focus for the tower and data center operators in the second quarter.
The analysts have two top picks, and a third company rated Buy that looks attractive. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
This wireless tower stock is a top pick on Wall Street and at Goldman Sachs, and it is acknowledged as an industry leader. American Tower Corp. (NYSE: AMT) is the largest global owner and operator of wireless and broadcast communications towers. Its portfolio includes approximately 170,000 sites in the United States, Latin America, India, Europe and Africa. The core business for the company is leasing space on its wireless towers, primarily to wireless carriers, government agencies and broadband data providers.
On a multiple basis, the stock trades cheaper than the competition, and many top analysts around Wall Street feel the growth potential for the company remains among the best in the industry. Goldman Sachs had this to say about its top tower pick:
We see limited downside risk to domestic leasing estimates for American Tower, as we believe that consensus (Visible Alpha) reflects the company’s multi-year outlook for organic growth. We believe that the recently completed Telxius deal could drive upside to 2022 consensus adjusted funds from operations/share estimates ($9.91 vs. $10.03 Goldman Sachs estimate.
American Tower stock investors receive a 1.74% distribution. The Goldman Sachs price target for the shares is $310, and the Wall Street consensus target is $283.76. The shares closed trading on Tuesday at $278.53.