According to Wells Fargo Analyst Eric Luebchow, since the start of Q4 2020, the market has not been kind to the towercos. They have been down -9 percent on a weighted average basis versus the S&P +13 percent. Multiples have contracted -3.0x on a EV/EBITDA basis and -4.3x on P/AFFO.
“While the value rotation and interest rates bear watching,” Luebchow said, “we believe most of the bad news is behind us as we approach earnings season. In our view, the biggest areas to watch around earnings season will be (1) SBAC and AMT’s guidance (+ potentially longer-term guide from AMT); (2) timing of C-band spectrum deployments, particularly from the A-block “winners”; and (3) cadence of TMUS lease signings and commencements.”
Luebchow and his team at Wells Fargo surmise that any of the positive catalysts for the towercos will likely have greater impact on 2022 growth rates versus 2021. Their top idea for 2021 remains SBAC, although they acknowledge some potential risks to its 2021 guidance.
“2021 guidance will be key focus,” Luebchow said, “with CCI’s 2021 guidance behind us, the focus shifts to AMT and SBAC. For AMT, we expect ’21E AFFO/share growth of ~10 percent (including ~100 bps of accretion from InSite), in-line with consensus, and organic tenant billings growth of +5.0 percent (+4.7 percent domestically; +5.8 percent internationally). We expect SBAC to guide conservatively, including +3.5 percent organic site leasing growth and ~7 percent AFFO/share growth (below the ~9 percent implied in consensus numbers). We do see the potential for upside to SBAC’s growth trajectory in 2021, depending on the sizing and timing of share repurchases. We have modeled $300MM of share purchases,” he said, “though SBAC could theoretically repurchase up to $1.5B absent M&A.”
Unprecedented levels of C-Band spectrum auction bidding has ended, according to Luebchow, achieving $81B on a gross basis. He said some investors believe the elevated bidding activity could stretch carrier balance sheets and slow the deployment of the C-band spectrum.
“But our view,” he said, “is that VZ — likely the winner of the majority of the earlier clearing A-block spectrum — has fully budgeted to deploy the C-band spectrum as quickly as possible in an attempt to keep pace with TMUS’s rapidly-expanding mid-band 5G network.”
Luebchow said the majority of bidding activity is likely to come from VZ (~$30-40B) and AT&T ($15-25B), while both TMUS and the cablecos should also be very active.
“We would expect to see leasing activity for the earlier-clearing blocks materialize in the second half of 2021, although the financial contribution is likely more weighted toward 2022 and beyond,” he said.
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