American Tower Corp. (NYSE: AMT), Crown Castle International Corp. (NYSE: CCI) and SBA Communications Corp. (NASDAQ: SBAC) are set to benefit from five key trends in wireless telephony. Moody’s Vice President and Senior Analyst Gregory Fraser has issued a report that these trends will support earnings and cash-flow growth for the U.S. cell tower operators over the coming years.

The first of these trends is spectrum auctions, which should prompt carriers to add equipment such as antenna and microwave dishes to towers. It will allow users of smartphones, tablets and other mobile devices to download video and other data-intensive content from the Internet faster. If Sprint and T-Mobile purchase spectrum at auction, they’re likely to make some headway in catching up Verizon and AT&T.

Wireless data traffic is expected to surge over the coming years, as carriers compete for subscribers by offering consumers cheaper data plans. Despite Verizon and AT&T having nearly complete 4G networks, they still need to add more capacity to deal with the growing demand for consumer broadband across these networks. Ultimately it comes down to adding more towers to accommodate more consumers and more demand.

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Online streaming video has become a popular consumer trend. An influx of low-priced, unbundled options featuring high-demand content from a growing list of over-the-top providers has influenced many households to choose Internet-based video streaming over traditional cable TV. This has been reflected in the rise of Netflix and other companies that stream content online. Fraser said in his report, “By 2018, mobile video is expected to account for nearly 70% of total mobile-data traffic, compared with around 53% today.”

Content from cloud libraries is likely to be streamed going forward, rather than being purchased outright. This so-called cord-shaving offers growth opportunities for the video-on-demand and mobile-video-streaming markets. This increased demand will require carriers to deploy more equipment on existing towers and add new towers as data usage will increase over time.

A rising trend of “cord-nevers,” or people who have never subscribed to pay TV and never intend to, consume a larger amount of mobile data than other demographics. It consists of mostly Millennials who rely on smartphones and tablets to exploit the high-speed Internet and connectivity that these devices entail. This is a positive indicator that more cell towers will be needed as time goes on to deal with this increased demand and traffic.

Fraser went on to say:

We expect cell tower operators’ organic revenue and earnings to grow by 7%-10% per annum over the next few years. The cell tower business model benefits from good operating leverage, and companies can generally add one or two additional revenue-paying tenants to a tower without much extra expense, resulting in better margins and cash flow.

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American Tower has a consensus analyst price target of $107.58, and it has a 52-week trading range of $71.55 to $99.90. Keep in mind that American Tower is already operating as a real estate investment trust (REIT), which affords it certain tax advantages now that it is a mature company.

Crown Castle has a consensus analyst price target of $88.88 and a 52-week trading range of $68.44 to $81.00. Crown Castle announced on September 2 that it had received a favorable ruling from the Internal Revenue Service under a private letter ruling (PLR) regarding the real property portion of Crown Castle’s small cell networks. The company said:

The PLR provides that the real property portion of Crown Castle’s indoor and outdoor small cell networks and the related rents qualify as real property and rents from real property, respectively, under the rules governing real estate investment trusts.

SBA Communications has a consensus analyst price target of $119.69, and it has a 52-week trading range of $76.18 to $113.79.

The only issue that 24/7 Wall St. would urge readers to consider here is that the combined market capitalization rates of these three tower owners and operators is already $80 billion. None of them exactly trade at cheap earnings multiples compared to the broad market and compared to the safer telecom dividend companies. That being said, Moody’s believes that these three wireless tower operators have a lot of room for growth in the coming years.

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