The telecom world is currently captivated by the looming resolution of the T-Mobile/Sprint merger saga, according to MoffettNathanson analyst Nick Del Deo. Those with an interest in towers are also paying close attention given the implications for tower leasing.
”Expectations for what the deal means for the Towers appear to fall within reasonably narrow ranges,” Del Deo said.
“Long story short, they’ll do fine in any outcome. As such, we thought it would be interesting to explore a different topic: Crown Castle’s meaningful underperformance relative to its peers over the last several years and whether or not this introduces a potential buying opportunity.”
Del Deo believes Crown Castle’s organic domestic tower growth has lagged that of its peers. “It bought into fiber just as the sheen on that business model was wearing off,” he said, “and growth has come in shy of expectations. Small cell growth has been hampered by installation hurdles. And there has been an increasing recognition that the quality of Crown Castle’s reported financials is lower than that of its peers.”
He feels there’s a case to be made that these negatives are now baked into Crown Castle’s valuation. Sentiment regarding the appeal of fiber seems to be at a trough in Del Deo’s estimation. “Crown Castle may have set the stage for nice incremental revenue and profit contribution from small cells given the backlog it has built and the capital it has already sunk,” he said. “And there’s no reason to think that, over time, its tower growth should be all that different from that of its peers as capacity rights granted to T-Mobile and AT&T are consumed.”
Del Deo said he likes the qualitative setup for Crown Castle, but two considerations keep him from getting more enthusiastic. First, the capacity right dynamic will likely persist for some time, particularly as it relates to AT&T. Second, the quality of Crown Castle’s EBITDA and AFFO is lower than that of its peers, a persistent valuation hurdle.
“We rate all of the Towers Neutral,” Del Deo said, “but in that context would rank SBA first, Crown Castle second, and American Tower third.”