3 Tower Stocks to Buy as FCC Auctions Key Government Spectrum

A new research report from the wireless and wireline analysts at Merrill Lynch says that from an acquisition standpoint there could be quite a brawl among the carriers vying for the spectrum. The need to expand network quality is crucial in expanding market share, and to get more, the carriers may pay up for it big-time.

The Merrill Lynch team also says that the top tower companies will benefit simply because they are the top tower companies. They point out that any spectrum AT&T might win could generate incremental tower siting demand. While other carriers are deploying advanced wireless services (AWS) spectrum, a huge AT&T auction win could be big. Plus, the tower companies generate the highest percentage of revenue from AT&T.

Here are the three top tower stocks to buy now, according to Merrill Lynch.

American Tower Corp. (NYSE: AMT) was a momentum trader’s dream stock, until the recent hammer job. Merrill Lynch thinks the company is set to benefit from 3G and 4G network build outs, densification of growing wireless networks, increasing smartphone consumer penetration, and fast-growing wireless data usage. Last year it bought 4500 wireless sites in Brazil and Mexico from NII Holdings for $811 million. American Tower is a leading independent owner, operator and developer of wireless and broadcast communications real estate. It currently owns and operates approximately 68,000 communications sites in the United States, Brazil, Germany, India, Mexico, South Africa and other places.

American Tower investors are paid a 1.4% dividend. Merrill Lynch is bullish on the tower sector and has a $106 price target on the stock. The Thomson Reuters consensus price target is $109.44. Shares closed Wednesday at $99.74.

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Crown Castle International Corp. (NYSE: CCI) offers significant wireless communications coverage to all the top 100 U.S. markets and to substantially all the Australian population. Crown Castle owns, operates and manages approximately 40,000 U.S. wireless communication sites and 1,800 in Australia. The company bought the rights to AT&T’s wireless broadcast towers in the fall of 2013 for $4.85 billion. When wireless service providers sell broadcast towers, they typically lease back space from tower operators so they can continue to offer their services without interruption. This is a win-win for the purchaser.

Crown Castle investors are paid an outstanding 4.1% dividend. Merrill Lynch has a $90 price target, and the consensus target is $88.11. The stock closed Wednesday at $80.51. We also reported last weekend significant insider buying at the company.

SBA Communications Corp. (NASDAQ: SBAC) owns and operates wireless communications towers in the United States, Canada, Costa Rica, El Salvador, Guatemala, Nicaragua, Panama and Brazil. The company leases antenna space primarily to wireless service providers on towers and other structures that it owns, manages or leases. The firm has seen solid earnings estimate revision activity over the past three months, suggesting analysts are becoming a bit more bullish on its prospects in both the short and long term.

The Merrill Lynch price target is $118, while the consensus is even higher at $123.31. Shares closed trading on Wednesday at $113.20.

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Needless to say, the tower companies are rooting for AT&T to be awarded as much of the spectrum auction as possible. Regardless of the results, all three stocks remain good additions to aggressive growth portfolios.