Telecom & Wireless

Goldman Sachs Says Buy 3 Dividend-Paying Tower Stocks Into Weakness

Equinix provides colocation services and related offerings, including operations space, storage space, cabinets and power for customers colocation needs; interconnection services, comprising physical cross connect/direct interconnections, Equinix Internet Exchange, Equinix Cloud Exchange, Equinix Metro Connect and Internet connectivity services; and managed IT infrastructure services, including installation of customer equipment and cabling, as well as equipment rebooting and power cycling, card swapping and emergency equipment replacement services.

Investors receive a 1.50% distribution. Goldman Sachs has trimmed its $925 target price on Equinix stock to $900. That is still above the $884.04 consensus target. Shares closed at $763.45 on Wednesday.

SBA Communications

This company continues to find solid growth opportunities. SBA Communications Corp. (NASDAQ: SBAC) is the third-largest U.S. wireless tower company, with approximately 25,000 towers spread across the United States, Canada and Latin America.

The core business for SBA is leasing antenna space on its towers to various wireless service providers on a long-term basis. The company also manages rooftop and tower sites for property owners under various contractual arrangements, and it has a large site development and construction division.

The analysts are very positive and noted this when discussing the potential for the company:

SBAC has the highest exposure to domestic tower leasing activity, which we believe is set to accelerate. SBAC has the highest mix of its revenue coming from domestic tower leasing among the three public tower operators. For example, domestic tower leasing generated 73% of the company’s consolidated revenue as of the second quarter versus 60% at CCI and 54% for AMT. As such, we believe that SBAC is well positioned to benefit from an acceleration in US tower leasing, as carriers begin to deploy their C-Band spectrum on macro-towers, Dish accelerates its network build to meet its 20% coverage deadline by June 2022 and Verizon and AT&T work to close the 5G gap with T-Mobile (which has been deploying low- and mid-band spectrum at a rapid pace).

Investors receive a 0.70% distribution. The $375 Goldman Sachs price target compares with the $369.89 consensus target. Wednesday’s closing print for SBA Communications was $326.70 per share.

All the stocks in this segment have had a powerful run over the past few years but have backed up nicely, offering long-term investors much better entry points. The demand growth should remain for years, and these top companies will continue to lead the way. With that in mind, it may make sense to buy partial positions in front of the earnings and see how the shares react. Also note that all three companies are real estate investment trusts, so distributions may contain return of principal.

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