Telecom & Wireless

Why This Analyst Loves 3 Stocks Affected by Sprint, T-Mobile Merger Talks

Lee Jackson

Published: April 12, 2018 8:20 am

Last Updated: January 12, 2020 1:30 am

In what seems like a Groundhog Day movie type situation, Sprint Corp. (NYSE: S) and T-Mobile US Inc. (NASDAQ: TMUS) are once again discussing a merger, just a short five months after concluding the last round of merger talks, which ultimately went nowhere. While many on Wall Street think the deal makes sense, the actions that could be taken by regulators always seem to be the number-one concern, and that in turn has always been cited as a major roadblock to completion.

In a new report, the analysts at Jefferies also think a deal would make sense, but they also stress that the regulatory environment seems even harsher now than it was when the last round of talks were going on, and they cite the current AT&T-Time Warner trial as an example. The report also said this:

The potential for significant synergies is undisputable and consolidation could lead to a more rational market; however, the regulatory environment is no friendlier today and presents a very high hurdle, in our view.

However, they do think that the talk of the deal is very positive for investors looking to buy the top tower stocks, as they have seen some selling on concerns of overlapping tower use by the two companies, which the Jefferies team feel is even lower now than it was last year. The analysts recommend three companies all Buy rated on the current weakness.

American Tower

This wireless tower company is a top pick on Wall Street and 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 140,000 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.

American Tower investors are paid a 2.14% distribution. The Jefferies price target for the stock is $163. The Wall Street consensus target is $161.14, and the shares closed trading on Wednesday at $139.92.

Crown Castle International

This top tower stock offers incredible growth and income possibilities. Crown Castle International Corp. (NYSE: CCI) is one of the largest U.S. wireless tower companies, with over 40,000 towers across the country. Its core business is leasing space on its wireless towers primarily to wireless carriers, government agencies and broadband data providers.

The company recently announced its intention to acquire private fiber company Lightower for $7.1 billion. Wall Street applauded the purchase, with most analysts citing the accretive transaction as a huge positive for the company’s growth metrics. SunTrust feels that the company could grow 2018 EBITDA by 8.7%, versus the current 6.7% estimate, and that excludes the Lightower numbers.

Investors are paid a very solid 4.01% distribution. Jefferies has a $120 price objective, while the consensus estimate is $116.67. The stock closed at $104.86 on Wednesday.

SBA Communications

This one rounds out the trio of top tower companies getting a boost at Jefferies. 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 $200 Jefferies price target is well above the $183.52 consensus target. The stock closed on Wednesday at $164.39 a share.

The mobile data demand growth is only going to continue to accelerate, and these three top companies are the best way for aggressive accounts to play a space that should stay on fire. The stocks may remain volatile as the Sprint and T-Mobile talks go on, but any continued weakness should make for a great entry point for investors looking to buy shares.